That was the message Wall Street took away from a full-day meeting with analysts and investors that AOL held Wednesday, according to three people in attendance. AOL didn't allow the press to attend the gathering.
Though AOL's stock price has fallen 23% since early April, Wall Streeters at the meeting said they thought AOL did a good job of allaying concerns that it could fall behind as more Americans get high-speed access to the Internet from their homes.
Those concerns became especially sharp earlier this month when AT&T -- which already owns the cable operator
and a major stake in the Internet-via-cable company
-- sealed a deal to acquire another major cable operator,
"That was the primary concern, and
AOL handled it pretty deftly," says Ulric Weil, senior technology analyst with
Friedman Billings Ramsey
. (Weil has a buy, his firm's highest rating, on AOL; FBR has not done underwriting for the company.) The main messages that Weil heard were that AOL's customers didn't want or need broadband cable access currently, and "it would be uneconomic for AOL right now to please their investors by investing in a cable operator at these outrageous valuations we're seeing."
Lawrence York, lead portfolio manager of the
WWW Internet Fund, came away with a similar feeling. York summarizes AOL's presentation this way: "With our content and our consumers, cable isn't going to be a problem. Basically, AT&T and other vendors will want them."
Broadband wasn't the only subject covered at the meeting. In a presentation about AOL's international operations, the company explained it was keeping a close eye on China and India as possible markets, according to Weil. "International is going to be big, big, big," he says.
Attendees also heard a presentation from chief technology officer Marc Andreessen. The co-founder of
, which AOL acquired earlier this year, talked about technology trends which would affect AOL's future, such as networking among different devices in the home.
"Home networking is going to be the killer app that drives broadband," was how another fund manager, who asked not to be identified, paraphrased the company's point. A theme hammered home by Andreessen and others was that consumers will need multiple devices for going online, and that narrow-band access will continue to play a role, according to Weil.
All in all, the meeting "was very upbeat," York says. "They played to their strengths. AOL has a lot of consumers, and that number grows."
AOL's stock rose 7/16 Wednesday to close at 134 1/2.
Down Jacob's Ladder
Of course, with AOL down from its all-time high in April, investors are less bullish on the stock -- just as they are on other industry leaders, such as
, which is 35% off its record high, also set in April.
One of those shareholders who's less bullish is Ryan Jacob, portfolio manager of the
Internet Fund. Jacob disclosed Monday in a letter to subscribers that both AOL and
had fallen off the list of the fund's top 25 stock holdings, the first time in "years" that either bellwether hasn't been in the fund's top 25, Jacob said.
"We still believe that both companies will continue to be leaders; however, we are skeptical that these stocks can continue to grow as they have in the past given the increasingly competitive outlook in ... Internet access and commerce," wrote Jacob.
Nothing against AOL and Amazon.com, says Jacob. "We just feel there are better risk/reward opportunities with some of the small to midsize companies," he says. Among the five new names in the Internet Fund's top holdings are
. Jacob still holds both AOL and Amazon.com in the Internet Fund.
Despite AOL's deft handling of the broadband question, Jacob, who didn't attend the conference, says he regards broadband as the "front and center" competitive issue for AOL. As more online subscribers move to broadband connections and non-PC devices for Internet connections, "AOL is going to have to be on its toes to provide services in a multidevice environment," Jacob says. "I think a real question mark will be at what point does it affect AOL's subscriber growth."