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Nasdaq Loses AOL To NYSE

News

America Online Inc. (AOL) has decided to move its stock listing on the New York Stock Exchange (NYSE) from Nasdaq, according to the WSJ (August 1, 1996).

Analysis

I would like to use this news and last week’s story on Nasdaq to explore AOL’s motivation for such a move.

As noted last week, there is overwhelming evidence that companies listed on the Nasdaq market have two major disadvantages compared to those on the NYSE: higher bid-ask spreads which, in turn, exacerbates the volatility of stock prices. Thus, the move seems to be driven by the need to eliminate this disadvantage of investing in AOL stocks.

What about the benefits of Nasdaq? Why Don’t Companies Move to the Big Board?"

It can be argued that AOL has already exploited the benefits of listing on Nasdaq; the "brokers incentive" has already created the initially needed liquidity and the "insider stock" has been at least partially sold. On the other hand, AOL is not mentioned in Nasdaq’s "the stock market for the next 100 years" commercials. The beneficiaries of these commercials for the most part are still Microsoft, Intel, and MCI. As a matter of fact, AOL would get free publicity by not staying on Nasdaq. Hence, the only potential plus for the Nasdaq market seems to be "listing costs."

Sources "familiar" with the AOL decision have told the Journal that "the Internet firm believes it will receive greater international exposure with a New York Stock Exchange listing. The company is gearing up to offer more services in France, Germany, Japan and Britain. " Although this reasoning does have some merit, it is not very compelling as all AOL needs to do is invoke the names of Microsoft, Apple, and Intel. If "international exposure" were such an issue these other giants would have been the first to migrate to the NYSE.

Other Migrations. In the first half of this year, the Big Board has lured 32 transfers from Nasdaq including Bay Networks Inc., at the time the ninth-largest Nasdaq firm in terms of market capitalization, according to the Journal. AOL ranks 35th-largest by the same measure.

There were a record 62 transfers in 1995.