In Focus

AOL is AOK

Putting AOL through the Chicks' Dozen
by Chick Megan

Welcome. You've Got Mail.

Ahhhhh... what euphoria! Don't deny it, you too have gone online (morning breath and all) eagerly awaiting those words. That terrific catch-phrase has gained such notoriety they even named a movie after it. You can't get away from it. Aptly named "America Online" (considering most of America is online), AOL is to internet service providers what Coke is to soft-drinks and Kleenex is to tissue.

During one of our many moves this year I was left without the use of my computer for a few weeks. Experiencing utter agony, I jumped at the opportunity to log on to a friend's computer who subscribed to another internet service provider.

Suddenly I was dealing with a computer, not a personality. It was so industrial... so boring... so without character. All my fun had been zapped from the screen. If I was someone who utilized the computer to simply type letters and write term papers, fine, but I love to peruse. I love to be entertained while I research for these articles. I need the happy, bubbling warmth of America Online. But in this day and age when even the microwave takes too long can it literally stand the test of time? Does AOL meet the Chicks Dozen?

Let's see how their numbers stack up..

AOL & The Chicks' Dozen

1) Buy What You Know: Hmmm, who doesn't know AOL? It's as American as apple pie. Know it? Breathe it!!

2) K. I. S. Sistah: Could I explain AOL to a 5th grader? Are you kidding me? They could explain it to me.

3) Industry: Computer Technology -- Do I think this industry has potential for growth? Absolutely! This industry is exploding right now; the possibilities are endless.

4) Leader in its Field: Who are its competitors? (Smartmoney.com) Who do you think is the leader? Exactly. AOL has been the leader in it's field since it began.

5) Repeat Profitabilty: Easy enough, even for math-loathers. (That'd be me.) 24-Million Subscribers at 29.95/month. I'm going to skip the math..but that's serious cashola!

6) Gross Margin = (Sales - Cost of Sales) / Sales
In AOL's wording (Revenues - Cost of Revenues) / Revenues

(6886 - 3458) / 6886 = .4978

Multiply by 100 to change to a percentage and round up. Gross Margin = 50%. Yep, meets our requirement, Bar-AOLy. (That was barely, just trying to be creative.)

7) Net Margin = Net Income / Sales

1232 /6886 = .179

Multiply by 100 to change to a percentage and round up. Net Margin = 18%. Net Margin Heaven; much greater than our required 8%!

8) More Cash than Long Term Debt = Cash/ Long Term Debt

2490 / 1630 = 1.5

AOL has 1.5 x Cash than Long Term Debt... $$$$$ (Five dollar sign rating)

9) Flow Ratio Below 1.25

(Current Assets - Cash) / (Current Liabilities - Short Term Debt)

(4428 - 2490) / (2395 -0) = .8091

Flow Ratio = 81%

10) Increasing Growth: (Sales this quarter - Sales Last Quarter) / Sales last quarter

In Millions (again):

December 1999 = 1836

June 1999 = 1929

(1929 - 1836) / 1836 = .0506

Multiply by 100 to change to a percentage...  5% increase in Sales from last quarter. (Chick Tip: You can also do this Sales Growth figure from Year to Year from the ANNUAL Income Statement)

Also, on the Increasing Growth front, AOL just purchased Time Warner. There are critics who feel this was a bad move, but I'm an optimist. Well, I'm an optimist and I'm a big believer in proven performance. Much of what Steve Case has touched has turned to gold. AOL is his baby, he's not gonna let it go to heck in an egg basket. This merger should take AOL to another level. All you nay-sayers... watch and learn.

11) Strong Management and History: Steve Case, CEO... is he likable? A little Internet search says he's a pretty closed person but he wears "loud" Hawaiian shirts; that's bold. He sang in a new-wave rock group back in college, and had the courage to hire Mr. Pittman even though the top MTV exec could have easily stepped into his shoes. (This shows he's confident, a visionary). The only "weak" area was seen to be his inability to be a "fiery, charismatic" leader. Haven't we all had enough of the Bill Clinton era anyway? Look, the guy wants to take us places via the Internet that we never imagined. He has so far and I don't think he's stopping now. Again.. look at the numbers... CASE in point.

12) On Sale: Another simple math formula. Let's do it together shall we?

(52 Wk. High + 52 Wk. Low) / 2 = 52 Week Average

(95.81 + 45.5)  / 2 = 70.655

Today's stock is trading at 55.96, that is almost $20 off it's yearly average. That'd be -- ding ding ding -- SALE!

It looks like America Online isn't just a passing phase and "You've Got Mail" isn't just a passing phrase. It meets all twelve of the Chicks' Dozen Criteria.

Signing off AOL Style... Good Bye.