AOL stock defies problems

Despite a national pricing controversy and a multimillion-dollar quarterly loss, America Online's stock rises more than 13 percent.

CNET News staff
2 min read
America Online (AOL), buffeted by increased competition from Microsoft (MSFT), a national pricing controversy, and a multimillion-dollar quarterly loss, saw its stock rise more than 13 percent today on a buy recommendation from a single analyst.

AOL finished at 39-7/8, up 4-5/8 points from its Friday close.

Brian Oakes, an analyst with Lehman Brothers, reiterated his buy recommendation for the online service, citing "big news" expected to come out of AOL's semiannual partners' conference tomorrow.

"We expect the big news out of the conference will be that subscriber growth in November is the highest in the company's history...This follows a strong October," Oakes said. "This would confirm our belief that AOL's subscriber momentum has returned and should reach our estimate of 800,000 this quarter."

AOL added 275,000 new subscribers in October and is expected to report more than 300,000 for November. Oakes said AOL's new flat-rate pricing, similar to that already used by Internet service providers, may also push up subscriber growth.

AOL's flat pricing structure recently was challenged by 17 state attorneys general, who were concerned that the new plan would automatically sign up customers for a rate that could be higher than their current per-hour usage plan.

At least one state agency has reached a settlement, however, as AOL indicated that it would allow customers to sign up for a rate instead of being assigned one automatically.

AOL, which has a 52-week high of 71, saw its stock price plummet to 22-3/8 in mid-October. That free-fall came as AOL announced its flat-rate pricing plan and as Microsoft unveiled its revamped online service, Microsoft Network.

The stock continued to fluctuate after AOL reported a first-quarter net loss of $353.7 million on November 8, attributed largely to a write-off for an accounting change.

The stock began to take off in late November, as analysts changed their estimates for the service. For example, Cowen & Company upgraded their recommendations to buy from neutral last Wednesday. That helped propel the share price to 34-1/2, up 1-7/8 points.

And based on the recommendations of ten brokers, with the range falling within buy, buy-hold, and hold, the mean is slightly above the buy-hold mark, according to First Call.

"With AOL's dominant position in the online-Internet marketplace strengthening," Oakes said in his report, "we believe the shares are very attractive at current levels and reiterate our buy rating."