AOL Sings New Tune With Netscape

Now that AOL has absorbed Netscape what on Earth does it mean?
If rock singer John Cougar Mellencamp can forgive a little paraphrasing consider “the little ditty from Case and Pittman, two American’s online doing the best they can…Case said hey Bob let’s get Netscape for a moment; Bob says Steve let’s do the best we can; (the chorus) oh yeah AOL lives on, long after the reports of its demise are gone; singin’ oh yeah AOL lives on, long after the 2400 baud is gone, they walk on…”

What that means in invest speak is simply this: AOL is #1 in audience rating on the Web, with Netscape in the fold this former online dinosaur has made the jump to vertebrate living.

Check out how AOL compares to the other top 10 Web properties in value per unique user:



















































































































































Internet.com’s

March

4-15-99

4-21-99

4-15-99

4-21-99

Percent

WEBDEX

Users

Market cap or PMV*

Market cap or PMV*

User

User

change

 

(millions)

(millions)

(millions)

Value

Value

 

AOL.com*

47.0

$10,250

$25,000

$218

$532

143.9%

Microsoft.com*

32.0

$9,200

$8,750

$288

$273

-4.9%

Lycos

31.9

$4,238

$4,384

$133

$137

3.4%

Yahoo

31.3

$41,794

$35,064

$1,336

$1,121

-16.1%

GO Network (SEEK)

23.8

$4,729

$3,601

$199

$152

-23.9%

GeoCities

21.3

$4,303

$3,753

$202

$176

-12.8%

Excite

18.9

$8,128

$7,375

$431

$391

-9.3%

Time Warner web sites

13.3

$1,750

$2,000

$132

$151

14.3%

Blue Mtn Arts

11.1

$1,350

$1,250

$122

$113

-7.4%

Amazon.com

10.7

$26,943

$28,877

$2,510

$2,690

7.2%

TOTAL

241.2

112,685

120,054

5,570

5,736

3.0%

AVERAGE

24.1

11,269

12,005

557

574

3.0%

MEDIAN

22.5

6,429

5,880

210

225

7.1%
) 1999 internet.com *pmv=estimated private market value for website only; users, media metrix; valuation methodology and estimates by Steve Harmon

This kind of tectonic reach jump vaults AOL.com’s private market value to $25 billion according to my valuation estimates. I’m going that high that fast based on what can only be described of as that point beyond critical mass where “chain reactions” happen. The 1 + 1 = 3 equation.

AOL.com at $25 billion is still a fraction of the overall market cap of AOL (NYSE:AOL) — 19% allocated PMV.

Yahoo (NASDAQ:YHOO) pending mergers with GeoCities (NASDAQ:GCTY) and Broadcast.com (NASDAQ:BCST) should put it up on the rankings higher. The biggest surprise is Lycos (NASDAQ:LCOS) which jumps to #3 or a value per user of $137, or 12% of a Yahoo user value.

Let’s take a wider view for a second on AOL’s clear #1 slot since I believe it defines the space the others must follow in. All Internet businesses aspire to critical mass. Now depending on the market or niche that can be anything from 1 million to 50 million users/customers. What few people ever talk about is what occurs once critical mass has achieved.

It’s the same thing that occurs in every industry: Ford and cars; Kroc and McDonalds; the fizzy guy and Coca Cola; Gates and Windows; AOL and the Internet.

Some five years after first delving into the financials of AOL I am amazed it made the shift to being the power player of the Web. I can recall an AOL in 1994 (and I’m sure many of you can) that had a very rudimentary, confusing, archaic Internet interface that allowed for some FTP and Gopher.

One of the key turning points for AOL was four years ago when it suddenly decided that rather than pay content providers for their content AOL would charge content providers to distribute their content.

That was a turning point in many ways for the online business model because nobody until then had a model that worked, that showed how a online property could generate earnings.

That AOL would end up owning Netscape, the definer of the browsing experience also is testimony to the kind of leverage longevity, smarts and recurring revenue provides. For the one thing AOL did right was integrate the experience: dialup, content and into dial-up, content, commerce.

This is a stock that adjusted for splits went public south of $1 buck a share in 1993. What’s important here for today’s investors is simply this – I think AOL has possibly become the industry defining company more than any other.

At $1.82 billion revenue for the six-month period ending 12/31AOL leads the pack in Internet company revenue generation by far. For the three months ending that same period AOL generated $779 million revenue, up 61% vs. prior year quarter.

Where I see AOL growing the fastest is its commerce, advertising and other revenues which climbed 65% to $325 million over this same six months.


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