With shares of AOL Inc. (NYSE:AOL) trading at around $36.54, is AOL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
AOL is no longer cool. This is a company that has made some strategic moves over the past several years, but the brand is still lacking. When people hear the name “AOL,” they think archaic. AOL must do something to improve its image if it really wants to make substantial improvements in traffic and revenue.
AOL’s traffic stats for the past three months have been ho-hum. According to Alexa.com, AOL.com pageviews-per-user declined 1.99 percent, time-on-site declined 2 percent, and bounce rate (only one page view per visit) increased 2 percent.
Over the past three months, HunffingtonPost.com pageviews-per-user increased 2.3 percent, time-on-site declined 1 percent, and bounce rate increased 1 percent.
Over the past three months, Games.com pageviews-per-user declined 4.30 percent, time-on-site increased 1 percent, and bounce rate increased 1 percent.
However, Q1 traffic and subsequent revenue impressed on a year-over-year basis:
Unique Visitors: Increased 3 percent
Global Display Revenue: Increased 8 percent
Third Party Network Revenue: Increased 10 percent
Global Search Revenue: Increased 9 percent
Subscription Revenue: Decreased 9 percent
Most importantly, AOL has suffered consistent declines in revenue on an annual basis. AOL has made all kinds of moves to improve the bottom line, which has helped lead to stock appreciation, but for long-term success, there must be growth. Q1 did show revenue and earnings improvements on a year-over-year basis, but not on a sequential basis.
This is all related to laying off employees and company culture. AOL has been laying off employees for years. This has helped cut costs and boost profits, but it has also lead to a shaky company culture. It’s not easy to work at top potential when the guillotine is always in operation. According to Glassdoor.com, 52 percent of employees would recommend the company to a friend. In regards to leadership, 66 percent of employees approve of CEO Tim Armstrong.
|Operating Cash Flow||386.30M||16.56B||-360.33M|
Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
AOL has outperformed Google and Yahoo over a three-year time frame. However, it has lagged its peers over the past year, especially as of late.
|1 Month||Year-To-Date||1 Year||3 Year|
At $36.54, AOL is trading below its 50-day SMA and above its 200-day SMA.
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for AOL is stronger than the industry average of 0.10. Debt isn’t a concern.
E = Earnings Have Improved
Annual earnings have made significant improvements. However, annual revenue has been in steady decline.
|Revenue ($) in millions||4,166||3,257||2,417||2,202||2,192|
|Diluted EPS ($)||-14.42||2.35||-7.34||0.12||11.21|
When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.
|Quarter||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012||Mar. 31, 2013|
|Revenue ($) in millions||529.40||531.10||531.70||599.50||538.30|
|Diluted EPS ($)||0.22||10.17||0.22||0.41||0.32|
Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
AOL has made wise acquisitions while cutting costs over the past few years, but despite the impressive run in the stock, it still hasn’t been enough for long-term growth and success. AOL has potential to be great again, but it must make a big splash somewhere in order to improve the brand.
AOL is a WAIT AND SEE.
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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.