Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Richard M. Jimmink who wrote (15456)	5/6/1999 10:17:00 PM
From: puborectalis	Read Replies (3) \| Respond to of 41369

AOL: don't panic By David Simons Red Herring Online May 6, 1999 America Online (NYSE: AOL) partisans who have stake in "strong buy" ratings and $200 twelve-month price targets are out in force trying to assuage the concern over AT&T's (NYSE: T) recent moves. The purchase of MediaOne (NYSE: UMG) by AT&T is one problem AOL boosters are trying to defuse. Their basic argument is that development of broadband is in its infancy, and any meaningful impact on AOL is years away. That's exactly correct. However, those $200 targets value AOL on prospects for a future at least as distant as when cable might curb AOL. Consensus projections are that there will be 4 to 5 million cable modems installed by 2002. The modestly bullish forecast for AOL by then is 25 million subscribers. But obviously cable service won't claim 4 to 5 million of them. @Home Network (Nasdaq: ATHM) says that 66 percent of its users are former AOL subscribers. The impact of competition from DSL, which has yet to begin major rollout to consumers, is still unknown. So today it appears that AOL could lose no more than five to ten percent of the subscriber count projected for 2002 -- if AOL gains no entrée to cable by then. PRECARIOUS POSITION Nonetheless, when a stock trades at a price/earnings ratio of 265 on financial year 2000 earnings estimates, tiny bogeymen can cast giant shadows. Of more immediate potential harm is AT&T's deal with Microsoft (Nasdaq: MSFT). In particular, use of Microsoft client/server email and interactive TV software threatens the ambitions of the Sun Microsystems (Nasdaq: SUNW)-Netscape-AOL alliance. However, that may be less than is conveyed by immediate impression. The announced deal is nonexclusive and is just for a license for demo projects in two cities; a trial in a third city will use Microsoft client software in conjunction with unidentified "third-party server" software. That could be Netscape. Indeed, AT&T has been holding out olive branches to AOL, though they've been somewhat thorny. But it would have been impolitic to name Netscape in announcing the deal with Microsoft. In 1995 there was a huge hubbub about online providers' positioning in Windows 95. A year later, nobody cared. Our guess is that the AT&T Microsoft deal will look far less important within six months than it appears today. David Simons is managing director of institutional research firm Digital Video Investments.