Investment Opinion
FOOL PLATE SPECIAL

America Online Sets Phaser to WOW!

AMERICA ONLINE'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> presentation to financial analysts yesterday morning at their bi-annual Partner's Conference was definitely designed to "wow 'em." Although there have been no comments issued by any of the sell-side group in attendance yesterday, the fact that just about all of them flew off to Redmond, Washington for Microsoft's intra-net deal is probably what is delaying any positive comments.

I did see comments carried over Reuter's from one of the sell-side people in attendance mentioning the soon-to-be-announced Netscape/America Online joint advertising deal that could add $30 to $40 million in revenues this fiscal year. Fools that pay attention to the best analysts who follow the company were already aware of this one, though, as Alex. Brown analyst Steve Eskenazi mentioned it last week when he upgraded America Online to a "strong buy".

Essentially, the presentation focused on everything America Online thinks it can produce in the next six to twelve months that will help improve revenue growth. This included a full demonstration of WAOL 3.0, including two features I had not yet seen which I thought were especially compelling -- AOL Phone and Slide Shows. America Online also gave analysts a more concrete sense of what the interrupt screen sales campaigns that users have been besieged with over the past few months have been netting in revenues, while the key people in the Thrive/Time-Warner joint venture high-lighted the fact that America Online was integrating with the Web where the Web made sense. Mark Walsh also updated analysts on AOL Enterprise's early success in selling Private AOLs (PAOLs) to companies looking for simple "intra-net" solutions.

The real deal, however, was Myer Berlow's presentation on America Online's pending advertising push -- AOL has identified roughly 102 screens on which it wants to sell advertising spots, like the "Quotes & Portfolios" screen. Although I am still crunching through the numbers here, this could add $30 to $40 million over the next twelve months in revenue all by itself. Add to this the Netscape/America Online joint advertising that would put companies on Netscape by day and America Online by night, a dedicated staff of 35 ad people with 100 support staff and you have a company that believes it will take 20% of the online ad market this year. Last week I suggested that the real question surrounding AOL is whether and how soon it can convert from a computer services operation to a full-fledged media company dominating a new medium. Having quite a bit more information, I am preparing a "Fool on the Hill" article called "Inflection Point" for this evening in which I will try to answer these questions and quantify the impact on America Online's revenues and earnings per share (EPS).

UPS

MEDICIS PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MDRX)") else Response.Write("(NASDAQ: MDRX)") end if %> shot up $8 3/4 to $41 this morning after a Robertson Stephens analyst initiated coverage of the skin-care company with a "buy" rating.

Merrill Lynch raised its intermediate-term rating on DSP COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DSPC)") else Response.Write("(NASDAQ: DSPC)") end if %> to "accumulate" from "neutral" while maintaining its "long-term accumulate" rating. DSP is a digital signal processing chip maker valued at more than 12 times trailing sales. The stock climbed $5 3/8 to $38 1/2.

ILLINOIS SUPERCONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ISCO)") else Response.Write("(NASDAQ: ISCO)") end if %> popped up $3/4 to $24 when the company announced a successful field trial of its SpectrumMaster filder for cellular base stations. Will the cellular companies will retro-fit their existing stations with superconductors?

Implantable lens developer STAAR SURGICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STAA)") else Response.Write("(NASDAQ: STAA)") end if %> settled a pending patent dispute with Alcon Labs today by doing a cross-license agreement, sending its shares up $1 1/2 to $17 on this news.

CONTINENTAL WASTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CONT)") else Response.Write("(NASDAQ: CONT)") end if %> continued to climb today, up $1 1/8 to $22 5/8, possibly on hopes that Wayne Huizenga's Republic Waste or another acquisitive concern will set its sights on this company as its next takeover in the waste management industry.

DOWNS

METRA BIOSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MTRA)") else Response.Write("(NASDAQ: MTRA)") end if %> imploded $4 5/8 to $6 3/8 after the company forecast profits and earnings for the fourth quarter that apparently were below expectations. The company develops biochemical bone diagnostic products.

CALIFORNIA AMPLIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CAMP)") else Response.Write("(NASDAQ: CAMP)") end if %> got mashed for $7 1/8 to $26 1/4 after missing consensus estimates of $0.14 EPS by a penny yesterday in a very unforgiving market.

Salomon Brothers slashed its rating on TAMBRANDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TMB)") else Response.Write("(NASDAQ: TMB)") end if %> from "buy" to "hold" this morning, sparking a wave of selling that drove the stock down $3 3/4 to $41 1/4.

Storage-tech concern QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QNTM)") else Response.Write("(NASDAQ: QNTM)") end if %> continued to slide today after two downgrades following yesterday's bad news. Losing $3 to $15 1/2, Quantum's reliance on Apple and Compaq as customers is probably not helping it all that much these days. Bear Stearns, Hambrecht & Quist and Gruntal & Co. were among those downgrading.

Whoa, whoa, whoa. After Quantum's bad news, storage technology is being dumped across the board. HUTCHINSON TECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HTCH)") else Response.Write("(NASDAQ: HTCH)") end if %> fell $4 63/64 to $47 while KOMAG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KMAG)") else Response.Write("(NASDAQ: KMAG)") end if %> lost $2 3/8 to $29.

Merrill Lynch slashed AVX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AVX)") else Response.Write("(NYSE:AVX)") end if %> to intermediate-term "neutral" from "accumulate", causing the stock to fall $1 1/8 to $17 7/8 as a result. Merrill maintained its long-term "buy" rating, however, making Fools wonder -- if it is a long-term buy, why have near-term concerns?

COMDIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMDL)") else Response.Write("(NASDAQ: CMDL)") end if %> lost $2 to $10 3/8 after the company forecast an operating loss for its June quarter after it was negatively impacted by an unexpected sales decline. The company is mulling over whether or not it will throw in a one-time charge as well in the already lousy quarter.

FMC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMC)") else Response.Write("(NYSE: FMC)") end if %> dropped $4 1/8 to $64 1/8 this morning after the company said that the second quarter will come in "significantly" below estimates, while the whole of 1996 will be "slightly" below estimates. They blame higher raw material costs for the near-term pain.

DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> continued its volatile ways, dropping $5 3/8 to $80 5/8 in the continuing battle between the shorts and the longs as to whether the company is bunk or the best thing since sliced bread.

Although we can find no news to explain MICRION's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MICN)") else Response.Write("(NASDAQ: MICN)") end if %> slide $4 1/4 to $22 1/2 today after a larger drop yesterday, we can offer some suggestions: (a) a newsletter downgrade?, (2) recent insider selling?, (3) being in the out-of-favor semiconductor equipment business?

MACROMEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MACR)") else Response.Write("(NASDAQ: MACR)") end if %> continued to slide on worries about the company's first quarter earnings, dropping $4 1/8 to $28 7/8. The concerns focus on the company's FreeHand graphical software, although one analyst believes sales are healthy. An opportunity to get in cheap on a software franchise crucial to the Digital World?

C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUBE)") else Response.Write("(NASDAQ: CUBE)") end if %> continues to slump $2 3/8 to $36 1/2 over growing concerns that the company will lose MPEG-1 and MPEG-2 market share to new entrants. Given that the company is in its third-generation of products while most competitors are in their first, these concerns might be overdone.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool

Transmitted: 06/05/96