You can find plenty to fault at any $200 billion company, and Rick has done just that with AOL Time Warner. My friend has focused on whatever little weaknesses he can find -- mere 13% sales growth at AOL, a bomb of a movie called Swordfish (which I'd never even heard of), and an 11% decline in music sales.
Yet, 13% growth on $2 billion in sales is commendable, and music sales are sporadic and the division's success is largely contingent on one or two blockbuster artists each year, much like the movie division relies on a few blockbusters. (By the way, Rick, the Harry Potter movie opens this fall, and The Lord of the Rings trilogy opens this winter.)
What Rick is not considering, however, is the AOL Time Warner enterprise as a whole -- as one entity. He isn't considering where it stands in the giant entertainment and information industry, and he isn't considering what the company stands to gain in the next 10 years as various media converge over broadband.
AOL Time Warner is the best-positioned company in the world to lead the "newly" immense entertainment and information industry. Entertainment and information is going global -- much more so than it already is -- and AOL Time Warner is positioned to benefit greatly in not only Internet content and low- and high-speed online access, but in music, video, publishing, cable networks, and movies, all of which converge together well.
Granted, having a mammoth company is pointless if you're not making a profit or creating free cash flow, but AOL Time Warner expects its free cash flow to rise 50% annually for the next several years. In fact, even during this difficult year -- and 2001 has been very difficult for online and ad-reliant businesses -- the company has fared quite well. It should grow EBITDA near 25%. These gains are not just through layoffs, as Rick said (AOL Time Warner has actually laid off relatively few employees), but through cost savings and smart promotions as a newly combined giant.
Finally, the stock price, in the low to mid-$40s, represents a favorable risk-to-reward scenario for investors willing to put money away for three years minimum. So, Rick is the master of the witty play on words, but I believe that the only thing "drowning" is his bear argument.
Jeff Fischer is online right now, too, and willing to box Rick, broadcast over cable, for a high pay-per-view fee. Jeff's stock holdings can be viewed online (he doesn't own AOL), as can the Fool's disclosure policy.
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