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To: Banjo who wrote (53589)	4/28/1999 10:16:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Price: $153 Estimates (Jun) 1998A 1999E 2000E EPS: d$0.08 $0.36 $0.53 P/E: NM NM NM EPS Change (YoY): NM 47.2% Consensus EPS: $0.30 $0.53 (First Call: 22-Apr-1999) Q4 EPS (Jun): $0.01 $0.10 Cash Flow/Share: NA NA NA Price/Cash Flow: NM NM NM Dividend Rate: Nil Nil Nil Dividend Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: D-1-1-9 Mkt. Value / Shares Outstanding (mn): $181,458 / 1,186 Book Value/Share (Dec-1999): $2.18 Price/Book Ratio: 70.2x ROE 1999E Average: 16.0% LT Liability % of Capital: 22.8% Est. 5 Year EPS Growth: 50.0% Stock Data 52-Week Range: $175 1/2-$17 1/4 Symbol / Exchange: AOL / NYSE Options: Pacific Institutional Ownership-Spectrum: 51.9% Brokers Covering (First Call): 35 ML Industry Weightings & Ratings** Strategy; Weighting Rel. to Mkt.: Income: Underweight (07-Mar-1995) Growth: Overweight (07-Mar-1995) Income & Growth: Overweight (07-Mar-1995) Capital Appreciation: In Line (28-Jan-1999) Market Analysis; Technical Rating: Below Average (28-Dec-1998) Intermediate term opinion last changed on 29-Apr-1998. The views expressed are those of the macro department and do not necessarily coincide with those of the Fundamental analyst. For full investment opinion definitions, see footnotes. Investment Highlights AOL reported a strong FQ3. We are raising our EPS estimates slightly and maintaining our rating. * The only blemish on the quarter was that we were not able to raise estimates as much as we had hoped. The stock usually trades off after the company reports, and we would not be surprised to see it do so again. * Operating EPS of $0.11 (AOL stand-alone) beat consensus of $0.09 and hit the highest reasonable whisper. We are raising our F2000 estimate from $0.51 to $0.53. * Subscribers increased 1.8 million—the largest increase in the company's history and slightly better than our recently revised (upward) estimate of 1.7 million. * Advertising and commerce revenue of $157 million (AOL-only) increased an industry-leading 25% sequentially and crushed our estimate of $143 million. * The gross margin (stand-alone) increased nearly 300 basis points sequentially to 41% as a result of increased network efficiency—the largest such increase (and the highest margin) we've seen. Comment United States Internet \ Electronic Commerce 28 April 1999 Henry Blodget First Vice President America Online Strong Quarter; Raising Estimates Slightly BUY* Long Term BUY Reason for Report: FQ3 Results Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#20111837 Stock Performance 0 20 40 60 80 100 120 140 160 180 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 1996 1997 1998 1999 America Online Rel to S&P Composite Index (500) (Right Scale)