Wild ride: Online stocks surge thanks to AOL news

Summary:Online stocks surged Monday following news that America Online Inc. and WorldCom Inc.

Online stocks surged Monday following news that America Online Inc. and WorldCom Inc. would absorb CompuServe Inc. and its 2.6 million registered subscribers.

AOL finished at an all-time high of $76.06 per share, up $6.13 for the day. WorldCom rose $2.25 per share to $33.75.

While AOL and WorldCom both will benefit from the deal, other online firms rode their wave to also post impressive gains Monday.

Amazon.com, the nation's largest online book retailer, climbed $6 per share to $36. CyberCash Inc. closed up $3.88 per share to $22.38 and Excite Inc. was up $1.38 per share to $24.50.

Analysts said the AOL/WorldCom deal, combined with corporate increases in Internet-related advertising budgets, bodes well for the online industry. AOL's augmentation of what was already the world's largest online service provider is good news for the Dulles, Va., firm and its many online partners.

"This is very positive for AOL because it effectively lets them get out of the access business and focus on its core strengths of interactive services and content," said Paul Noglows, an analyst at Hambrecht & Quist. "These guys are going to be profitable soon. With 10 to 12 million users, they're going to offer to advertisers the kind of numbers that we see now in cable and broadcast television."

AOL, often criticized for inefficiency and billing screw-ups, gets $175 million from WorldCom in exchange for its ANS network service. The cash will be used to improve its infrastructure and expand its content base.

"I think today we are seeing a renewed interest in the Internet group," Noglows said. "Investors are heartened by news that IBM, Microsoft and Intel are announcing millions of dollars in ad campaigns for the Internet. People are seeing that the Internet is a viable medium for selling and attracting advertisers, especially when they see Dell Computer selling $2 million a day worth of computers from their Web site."

In an effort to build demand for their services, both CyberCash and E-Trade Group Inc., an online securities broker, announced Monday that they would embark on major television and mainstream print advertising campaigns.

Still some analysts are skeptical of AOL's and other Internet-based firms' long-term profitability.

"AOL looks great today, but it still keeps losing money," said Ernest Widmann, an analyst at Widmann, Siff & Co. "I like companies that make money. So far, no matter what the stock price says, AOL has still only lost money."

Noglows said AOL's ascent to profitability is well under way and the deal cements its future as a money maker.

"I'm estimating that AOL will make about 83 cents a share in 1998 on revenues of $2.4 billion," he said. "By 1999, those numbers will increase to $1.49 a share and $3.1 billion."

Topics: Intel, Amazon, Dell, IBM, Microsoft

About

Larry Barrett is a freelance journalist and blogger who has covered the information technology and business sectors for more than 15 years. Most recently, he served as the online news editor for 1105 Media's Office Technology Group and as the online managing editor for SourceMedia's Investment Advisory Group publications Financial Pl... Full Bio

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