Hi,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.
AOL is dead meat. That whole $2 will have to be spent on marketing to retain and grow membership at the higher price. AOL users only use 40 minutes/day. That is nothing. I would guess there is a core of satisfied AOL members that use most of that time. The others bearly even use the service. The price increase will finally convince them to cancel.
I am not saying that this report is completely accurate, but for AOL to keep the current revenue, it must keep 90% of the current members. Even then, they'll get very few new members in the future at $21.95