One Internet Stock that May Surprise You
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Which internet stock, over the past year, has had the greatest unexpected success? I know you are already thinking of several names in your head. It probably isn't one of them. But, it is one that you have definitely heard of. In fact, I can almost promise you that you have used their services at one point or another.
This stock, in my opinion, is the biggest comeback story of the past year. I think very few people saw this coming: one year ago, today, this stock was trading at just 32% of where it is right now. And a few people have cashed in.
So, which great internet stock has tripled, bringing shareholders a 3 bagger over one year?
It's not eBay (NASDAQ: EBAY), although they have made amazing progress over the past year. They just simply haven't doubled, much less tripled. Our mystery internet stock has an EPS of nearly 400% that of eBay's (although that's not to put down eBay: they are over 50% in the green over the past year.)
It's not Yahoo or Google.
It's not a young gun: Facebook (NASDAQ: FB), Pandora (NYSE: P), Groupon (NASDAQ: GRPN) and Zynga have all been huge disappointments. In fact, if you bought Facebook just a few months ago at its IPO price, you're looking at a sharp 31.66% fall: tough for a stock that had so much hype surrounding its IPO. However, it seems like Facebook just can't catch a break: having the settle with the FTV, phishing issues, and decreasing ad revenues have all sent it's stock down the drain for now. Pandora has tried to increase its revenues, but is struggling, partly due to competitors like Spotify. And Groupon has seen it's own problems, saying goodbye to three high level executives over the past few months. They, too, have dealt with revenue problems, as well as repetitive downgrades from analysts since their IPO late last year. They're down a whopping 72% since their IPO.
So, who is it? In fact, it's AOL (NYSE: AOL). And that actually isn't a joke. Yes, America On Line. Remember this? (You can click it, don't worry. It'll open in a new window.)
Or, do you remember this:
Well, AOL has come a long way since it's hottest products have become essentially obsolete. It's even revamped its logo and its entire interface to look younger, sleeker, and "hipper:"
So, how are they making their money? They have completely started over the way they do mail. They offer 100% free e-mail, as always. However, the user interface has completely changed. But, above all, one great day in April made AOL investors profitable, fast. One Monday in April, AOL offloaded over 800 patents to Microsoft. The deal, in total, made AOL about $1 billion. Not bad, huh? Well, the deal sent shares skyrocketing 37% in one day.
While the news is great for AOL, some are realizing the potential consequences. GigaOm's Matthew Ingram, one of the smart few, tweeted "It's great that AOL made a billion selling its patents to Microsoft, but you can only sell your furniture once." So, in the battle of patents, AOL has lost a few men. Is this critical?
The deal involved patents mostly about e-mail, chat, and UI (user interface.) Additionally, the deal was conducted before the release of the new UI that AOL recently launched. So, it appears that it will not be too difficult for them to live without the patents. Yet, what does AOL have now that's worth anything?
Well, AOL still has the mighty AOL mail. Although fewer and fewer people use it each year. Surprisingly, there are still people using AOL's dial-up service. 3.5 million people still are, in fact. That seems like a lot, but it doesn't sound like much compared to 26.7 million just ten years ago. So, where else does the money come in? I mean, come on, how can AOL still be profitable?
Years ago, AOL signed deals with many US wireless carriers. At the time, SMS and texting were not as popular as they are today. However, AIM (AOL Instant Messenger) was incredibly popular. So, these carriers agreed to pay AOL to connect texting with their AIM service. Those agreements still give "a cut" today to AOL, according David Temkin, AOL's head of mobile.
When these contracts expire is private as of now and unsure to the general public. However, it can't possibly last that much longer. Furthermore, now that AOL is down to about 300 patents, they don't have too much to back them anymore either. This certainly puts them in trouble. This is why, regardless of their charge over the past year, AOL is too risky of an investment for my portfolio. In fact, it will most likely be staying out of my portfolio for a while.
The Foolish bottom line
What about you? What do you think? Are you considering buying or selling shares of AOL? Let me know what you think in the comments section.
AOL certainly has had it's day. And it's rebound. In fact, if I told you a year ago today to buy AOL because it would triple, you would have laughed. Although, I wouldn't have told you that, because I would have had no clue myself. But in my opinion, it's days are very numbered.
Of course, even if you are a believer, no portfolio can be based around one stock. That's why you should check out my latest report, 5 Stocks to Keep the Rest of Your Life.
mpnolan222 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Motley Fool newsletter services recommend eBay and Facebook. 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.
