Is AOL in Danger?

Last week, when shares of America Online, Inc. fell 6.3 percent amid investor fears that its competitors would soon be giving Internet service away, AOL announced that it expects to meet profit forecasts.

Additionally, the number one Internet service provider asked its shareholders to allow it to issue an additional 4.2 billion shares, increasing its outstanding shares to 6 billion. AOL officials said that the money raised from the new shares would be used for acquisitions, stock splits and to thwart any potential takeover plots.

As usual, AOL is sending out a cacophony of mixed signals at a time when its stock — which is hovering around $90 (US$) per share — has lost half of its value since mid-April.

Some Fair-Weather Investors Bail Out

Some industry observers feel that some mutual fund managers are spooked by the fact that Microsoft is talking about joining companies like NetZero, Inc. in offering free Internet access in the United States.

It has been reported that at least one major money manager completely divested his fund of AOL stock because he believes it is only a matter of time before the Dulles, Virginia-based company will lose its monthly subscriber fees.

While there is some validity to investors’ concerns, I think that they’re being very shortsighted. Even worse, I don’t think they know very much about the business AOL has built over the last decade.

AOL’s Second Chance

Before you accuse me of being a cheerleader for AOL, let me tell you that I have canceled my Internet service with them twice in the last five years.

I was one of those disgruntled customers who couldn’t get online a few years ago, didn’t care about chat rooms and hated the unsolicited ads the company threw up on my monitor whenever I signed on.

So I canceled my service. I then signed up with a national service provider, but still continued to get calls and mail from AOL.

Several years passed, and guess what? The national ISP lost my e-mail and couldn’t seem to supply enough dial-up connections. So I decided to give AOL a second chance.

Value-Added Service

To my amazement, AOL had evolved into something stronger than any portal. It did so by offering a variety of value-added services, including major news wires, magazines and Web building services that would cost me money with other less expensive ISPs. In addition, by acquiring Digital Cities, AOL offered me localized weather, classifieds and news — at no extra charge.

I’m not endorsing AOL’s service, and many people I come in contact with still look at me with a jaundiced eye when I give them my AOL e-mail address. But because of the tremendous improvement and value I’ve seen added to its service, I have to look at them as a success story. This kind of dynamism is also the main reason I disagree with those who say it’s time to bail out of AOL ‘s stock — even though I don’t own a share myself.

I simply know that I will continue to pay my monthly subscriber fee for AOL’ s service — even though other companies are giving Internet access away. Why? Because the content AOL provides for me has value. It’s that simple. That’s why I think AOL is not in any imminent danger.

What do you think? Let’s talk about it.