AOL stock is up 160% in the past twelve months, and because of that, it seems like AOL bosses Tim Armstrong and Artie Minson have everything figured out.
But have they?
She argues that AOL investors " should dial down their expectations."
The gist of her argument:
- AOL stock is only so high because management sold off a huge asset (patents) and said it would return the cash to investors.
- While Google-powered search advertising is strong, and so is AOL's business selling ads for other websites, AOL's core business and supposed growth engine, display advertising, actually shrank last quarter.
- Patch.com is supposed to be profitable in 2013, but that looks unlikely.
- AOL's stock price is 21.6X forward earnings, a much more optimistic pricing than Google (14.5X) and Yahoo (15.4X).
But long term, AOL CEO Tim Armstrong is going to have to find a way to create some kind of real growth engine that can be AOL's core business going forward.
Display revenue shrinkage makes it look like that won't be Huffington Post, and huge losses and flickering consumer interest leave people skeptical of Patch.com.
Until Armstrong figures the future out, AOL has a core business of the past that's shrinking (dial-up), a core business of the future that's shrinking (display), and a dwindling pile of cash that came from a sale that will never happen again (patents).
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