|
November 28, 1999
The phrase "You've Got Mail" doesn't just remind us of the cute cyber love affair between Tom Hanks and Meg Ryan, but also makes us think about the Internet titan America Online (AOL). (That movie by the way did create a surge in the price of AOL shortly after the release of the movie.) So who could deny the power of AOL with its 21 million subscribers worldwide? Who could believe the riches bestowed on those lucky souls who placed their faith in AOL back in 1985 when it was a tiny struggling portal wrought with technical problems? One mega investor had the foresight to see the opportunity – Paul Allen, one of the founders of Microsoft. Paul Allen has moved on, but not without making millions from his early investment in the company.
Many would say this Internet titan is way overvalued with a PE ratio of 249, sporting a $186 billion market cap, but AOL's strength lies within its ability to consistently increase its membership and offer these paying members a full gamut of products and services. Over the past year alone, AOL has added 5 million new members and has added many new services and products either through acquisitions, like Netscape; through partnerships like Gateway or just organically like the newly released "You've Got Pictures", which will enable members to send and share pictures online. If you are a company with a product to sell online and you are looking for exposure where would you rather be – on AOL with its 21 million members or with MSN (Microsoft's ISP) with its mere 2 million subscribers. Although many analysts are challenging the viability of online advertising, the ad dollars just keep rolling into AOL's coffers. E-commerce has also been a successful revenue-generating model for the company. During the quarter ended September 30, 1999, America Online helped generate over $2.5 billion in e-commerce revenues for its partners (all of which AOL gets a piece of). Hmm….could that be why AOL is one of the few Internet companies that actually makes money?
For you more aggressive long-term investors that believe in the bright future of the Internet, it is time to sharpen your pencils and take a serious look at adding America Online to your portfolio (as always conduct your own research before making any investments). With the online holiday shopping season upon us, companies like AOL look to benefit from the cyber shopping explosion. It is projected to be another record breaking year in e-commerce revenues…Cha-Ching! Additionally, the company recently split making the stock more affordable to potential investors. AOL has successfully calmed (for now) the investors' fear of the threat of "free" Internet access, in fact Microsoft opted to raise its monthly subscription fee rather than lower it. Another confirmation that AOL's model works. The company is diligently working on a solution for high-speed access through its recent deal with Bell Atlantic – many more will follow. AOL is also well positioned to participate in the upcoming wireless boom with its "AOL Anywhere" campaign. Although the only guarantee is that AOL stock will be up sometimes and down sometimes, I am willing to place my hope and faith (and money) in this Internet titan.
|
