Because the bullish argument is a compilation of the great thoughts of all contributors, we have broken the Duel into several parts for you and given credit to the proper Fools.
The Business
On unlimited pricing - Quoting Jan Brandt [AOL exec] from the interview "There were sacrifices at all levels. Unfortunately, we sacrificed, some customer goodwill at the time, some of us probably sacrificed parts of our health and sanity. But there's no question that we needed to participate in that land grab. I mean, look at who's breathing down our necks."
Land grab? I'd say it turned out to the the Klondike gold rush of cyberspace. AOL has staked a huge claim and it's going to pay off very nicely. (S Kim XX)
On premium games: I have to say that AOL's new premium gaming channel will be another huge rev. booster for the coming quarters. Think about what AOL is basically giving parents... An arcade that costs less and parents don't have to drive anywhere. At $2 an hour this is a steal for parents that have children that love to play games in the arcade and who are on a tight budget. I can remember going, and sometimes still do at school, and blowing around $5-$10 in a couple hours on just a few machines just so I could beat the darn thing. (Zildjian01)
On access problems: In fact, I would like to turn this around. Rather than blaming AOL for not providing adequate service (which of course they should do), or for taking business away from ISPs (which is at best simply the way it goes in business, and is at worst a ludicrous notion, given the overall growth for online services) why not "blame" AOL for its role in driving public awareness of the riches of the online world, and for increasing demand? Rather than being an industry spoiler, and far more than merely being an industry leader, AOL is arguably an industry creator. (Loverbear - Fool Web)
A.k.a Peter Lynch?? - I buy stock in companies with products that I like and that I think will be liked and bought buy many people just like me, for years to come. While others point to AOL as the easiest way for the computer-challenged to enter into and enjoy the wonders of cyberspace, and it is that, I believe the need filled by AOL is ancient, not one brought about by modern technology. It is the need of community, the need of fellowship, the need of sharing, and belonging. This very old herd instinct is so strong that it shapes the way we all interact. And here on AOL this primal instinct takes on a new expression, one that fits with the world that we have become-fast paced, free wheeling, and full of quick bytes, and bites. (IntrnalMed)
Top 10 Reasons to Love AOL
I think the prospects are very bright for the following convergence of trends.
1) Price war in PC's, prices under $1000 will grow the market with alot of newbies.
2) The newbies will flock to AOL because it is the easiest with the cleanest interface.
3) Microsoft is running ads on AOL. Enough said.
4) AOL is credit card proof and the WEB is the WILD WEST.
5) Clinton has vowed that he wants the nations schools hooked to the WEB and is leaning on the FCC to rule on their side vs the Bell companies in court rulings. Government in DC used AOL to work with flood relief in the Upper Midwest.
6) AOL is the innovator with the channels format, IM, etc. I believe they are close to the customer and solicit feedback to identify trends before competitors. The most popular features in online are e-mail chat rooms and bulletin boards. MSN has no chat room, bulletin boards and there email is extremely hard to work with and is unreliable.
7) Unprofitable ISP's will start going belly up and people will migrate to AOL as it gets a reputation for the most reliable in the business.
8) AOL thru their business unit will extend presence in business intranets.(Nynex deal)
9) The CUC deal with their experience and AOL's marketing will be a Goldmine.
10) Look for $100,10 million subs, and Compuserve annoucement along with major partners buying equity stakes in AOL by year end.
Keep adding Modems!! (SZack10IS)
On community: AOL is an online community. I always read a member's profile (mine is under WRLord.) Is this available on the web? Look at the buddy lists, too. I love it (coincidence: two of my school buddies just logged on...) I've been too busy to make a phone call, but have had many short chat sessions with friends I wouldn't have bumped into except by chance. This content really separates AOL from the web. (MBAspeak)
The Valuation
AMERICA ONLINE: IT'S THE SUBSCRIBERS, STUPID
At $64, America Online is valued at $903 per subscriber for its current 8.5 million subscriber base (based on 120 million outstanding shares).
These subscribers have allowed it to cut the following deals:
TEL-SAVE HOLDINGS: $100 million in cash, warrants for 12 million shares of Tel-Save at strike prices between between $14 and $15 1/2 per share, and profit-sharing above certain stipulated levels;
CUC INTERNATIONAL/HFS: $50 million -- primarily to be credited against future transaction and membership commissions to AOL -- plus the potential for additional amounts based on a revenue-sharing agreement.
1-800-FLOWERS: $25 million plus a limited revenue share over the four-year agreement
AMAZON.COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>: $19 million over three years plus part of the revenues if they go above certain pre-set amounts
Clearly, this flurry of deals and the real cash that is being handed to AOL in these deals indicates that the company's value is in the subscriber base. With the addition of Robert Pittman to the management fold -- a man who would appear from the outside to deserve the lion's share of the credit for doing the day-to-day, detail work that has changed the focus of AOL Networks over the last nine months -- the company appears to be well positioned to take the subscriber-based adveretising and merchandise model into the 21st century.
Should the company move to 10 to 11 million subscribers this year as planned, $1000 per sub -- half of the current cable subscriber valuations, a medium where direct purchase is more difficult -- would put the company at around $87 1/2 per share over the next 12 to 18 months. Assume that subscriber values get to the level of Continental Cablevision ($2000/per), as America Online certainly generates significantly more in the way of revenues per subscriber as it ramps up advertising and merchandise ($7.14 per subscriber last quarter) at a much higher margin.
Most of the negative arguments center on what is old news: (1) accounting (done with), (2) pricing (currently right in line with competitors), (3) potential defections due to poor service (after six months of allegedly poor service, subscribers have remained at the levels mandated by the State Attorneys General) (4) the fact that it has never made "money" (ignoring the the four deals above, which allow account for $194 million or (5) the valuation based on forward earnings, which is dicey at best given the degree of difficulty modeling America Online's future revenues. With those deals accounting for at least $1.61 in EPS (based on 120 million shares) over the next two to four years, it is easy to see how next year's $1.00 estimates could have $0.40 EPS in upside -- or quite possibly more. (TMF Templr)