In addition to the negative outlook on its near-term growth, analysts have been pondering AOL's long-term future as virtually every other major online proprietary service, including Prodigy and CompuServe, begins moving their content to the Internet. AOL has been elusive about its Internet strategy, preferring to experiment with subsidiary Net services such as Global Network Navigator, which it owns.
Montgomery Securities today downgraded AOL's stock from a "buy" to "hold" rating, according to a report published on the Motley Fool, an online financial advisory that, ironically, is published by AOL and appears on its Web site. Investment analysts at Cowen and Company maintained a neutral rating for AOL stock but expected the service's subscriber growth to slow substantially next quarter.
The company's stock responded in kind to the analysts' ratings today, falling 5-3/8, or 10.14 percent, to close at 47-5/8.
Motley Fool, which has gained a strong national following through its exposure on AOL, speculated that the stock's decline was related to an announcement from CompuServe yesterday that it would use Microsoft software, code-named Normandy, to facilitate its migration to the Web. The decision by the number-two online service to migrate to the Internet followed a similar move by Prodigy, the third-largest service, and some analysts believe that AOL is being left behind.
In addition, AOL's chief executive and seven other company officials sold substantial numbers of shares recently. CEO Steve Case reportedly sold $14 million in shares in May at an average of $51 each. Observers attributed the selloff by the executives, which totaled 481,000 shares, to the belief that AOL's market value had peaked.