AOL: On the Block?

David Cassel (
Mon, 4 Nov 1996 11:28:52 -0800 (PST)

		        O n   t h e   B l o c k ?


Today's Washington Post reports Steve Case has already sold 60%
of his stock; Michael Connor, 70%, John L. Davies 55%.  Noting "The heavy
selling--and a conspicuous lack of buying--by AOL insiders," the Post
reports AOL execs sold almost $100 million worth over the last year.  Some
had options to buy the stock at six cents a share;  Steve Case's were at
$2.92.  (He ended up selling at prices between $38.45 and $55--almost 42%
higher than its current price.)

Defending what the front page of Friday's USA Today called an "AOL Price
Surprise," spokeswoman Melissa Andrews told the paper the new higher-by-
default pricing had already been chosen by--er, 5% of the company's
subscribers.  She argued the new rates are displayed on the opening and
closing screens, plus "a letter from AOL's Chief Executive Steve Chase." 
[sic]  But the paper noted those pages don't mention the automatic
conversion to $20-a-month pricing.  An analyst for Forrester Research told
the Boston Globe, "There's no doubt in my mind that they were hoping this
would just slide through under the radar."  Why?  "They need money." 

"AOL hopes the higher rates will boost its short-term cash flow," USA
Today agreed, "which was negative $66.7 million before a stock offering in
fiscal 1996."  Ironically AOL just ended what the Wall Street Journal
called "a much-criticized accounting approach ".  Now Washington Post
writers are passing around jokes about the new controversy.  "AOL doesn't
just shoot themselves in the foot.  They shoot themselves in every toe." 

The Journal quoted an analyst speculating the accounting switch aimed to
make AOL more attractive--not to Wall Street, but to a buyer.  (A rumor
Steve Case denied).  The same speculation surfaced earlier on C|Net--and
even back in the May 27 Newsweek, when columnist Allan Sloan noted that
"Steve Case's best scrambling can't prop AOL's stock forever."  Case would
have to start showing real profits "or pull off a financial Hail Mary
miracle play by selling AOL. Know a good, hungry phone company?" 
HotWired's Flux is reporting the same rumor--from sources inside the

AOL's internet "counterpunch" sent "Wall Street analysts scrambling for
their red pens," the Journal noted.  One analyst projecting a $1-a-share
profit now estimates a $130 million drop in revenue and a
three-cents-per-share loss.  AOL's financial analyst said he hoped the
one-year and two-year pre-pay options would augment the cash-flow by as
much as $100 million. (The Journal's analyst then noted the new accounting
puts AOL's balance sheets in a form potential buyers could accept.)

These are difficult times.  PC Week columnist Jesse Burst reports that 91%
of modem owners are already online.  Someone posted a WAV file called
"Taps" to alt.gnn.exodus.  And in response, one user posted "Warm
regards... HUMPH!" 


Another disgruntled poster in the same newsgroup noted that instead of
discontinuing GNN--it "would've been much better to keep them and kill

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