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Time Warner Inc. Message Board

  • bkhaki01 bkhaki01 Feb 12, 1998 10:19 PM Flag

    Calm down,folks

    I've been visiting this message board for a while since
    I'm like the most of you short of AOL.
    First,Toycruiser,be reasonable, AOL will not loose substuntial number of subscribers.I don't think $2 increase of membership fee makes much difference(demand for AOL services within this range is inelastic in economic terms).However,even if the whole America will subscribe to their service that will not make this company worth $12 billion.Consider that only 40% of households have computers and no one household will open more than one account.
    Profits from advertising can't generate abnormal earnings because the Internet is not a proprietary network. Furthermore,who knows what will happen 5 years down the line-maybe we'll use our TV
    to access the Internet.
    Second, I'm absolutely confident that this stock is overvalued.
    Those who're buying this stock at $117 are acquiring $3.05 book
    value per share.AOL must have astronomical ROE to justify it's current price.I've considered different scenarios and applied various valuation models to AOL.No one can justify it's current valuation.
    That's why I'm short.However, this market is sentiment driven
    and no one knows how much further this stock will move north.
    This bubble will burst someday.Until then all what we can do to partially mitigate the pain from temporary losses is to write puts on this stock.When the bubble will burst these puts will be exercised and short positions will be closed.

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