AOL Rises from the Dot-Com and Social Media Rubble
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In the annals of corporate mergers, the union of Time Warner and Aol.com is often times mentioned as one of the, if not the worst. According to Investopedia, "The consolidation of AOL Time Warner is perhaps the most prominent merger failure ever."
But, profit margins can be juiced up by cutting expenses that are counter-productive in the long term, such as key personnel and research & development. It is much more difficult to generate earnings growth. AOL has been doing this within a very bullish framework. Earnings-per-share growth on a quarterly basis is up by 409.89% for AOL. Yearly growth for earnings-per-share is higher by 101.67%. Over the last five years, earnings-per-share growth for AOL fell by 55.11%.
That is a very positive reversal in in the direction of the earnings-per-share growth for AOL, and it is not all from the patent sale to Microsoft, either.
Towards that, advertising revenues have increased for AOL. Overall, total advertising for AOL improved by 5.9% to $337.8 million. AOL’s advertising revenue for the core United States market ranks fifth behind that of Google, Yahoo, Facebook and Microsoft, according to EMarketer Inc, a research firm. AOL projects that $50 million in sales will be generated by local news division featuring Patch.
In addition to increasing earnings, AOL has very strong returns on operating activities. It recently revamped AOL Mail for the 24 million users. AOL also boasts a solid capital structure featuring robust cash flow and very low debt. Very high for AOL is the level of institutional ownership at 98.40%. By contrast, the level of institutional ownership for Facebook, not that long ago the darling of Wall Street and Silicon Valley until it released its first quarterly earnings as a publicly traded company, is just 11.49%.
Now trading around $31.50 a share, the mean analyst target price for AOL over the next year is $31.92. AOL is at its 52-week high. Recent volume has been very strong, a bullish sign. Another positive development is the trend being the friend of AOL shareholders as the share price is well above its 20-day (11.86%), 50-day (14.71%) and 200-day (56.22%) moving averages.
The most recent analyst action for AOL was very, very bullish, as it was a Buy recommendation from Needham earlier this month, raising its target price from $31 to $34. What makes this so compelling is that on April 10 of this year, Needham issued a Buy rating for AOL with the target price of $31. Since then AOL has soared more than 25% and Needham sees it rising even more.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Facebook, Google, and Microsoft. Motley Fool newsletter services recommend Facebook, Google, Microsoft, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.