Enough Facebook, Anyone Remember AOL?

Tl;dr AOL is operating at near FB levels of P/E, on tiny earnings, and this is probably unsustainble.

Tim Armstrong, CEO of AOL, did a talk at Techcrunch Disrupt. In it, Mr. Armstrong said, inter alia, that AOL was “becoming a house of strong brands” as it transitions to be more of a content company:

He admitted that despite having some dissident shareholders that “don’t believe”, in the content strategy, most of AOL’s shareholders do believe in it.
I'm not particularly interested in Mr. Armstrong's claims about what AOL is doing. However, I would like to examine the financials of AOL, especially now that we are all in stock-markety-valuation-y moods given FB's bump. Here's AOL's chart, as of close today, 5/22/12:
Just to reiterate, that is a Mkt Cap of 2.54B and PE of 85.38 which translates to earnings of $29.75M. That is very sincerely not a whole lot of money. Again, assuming a 'healthy' PE is somewhere around 13, AOL needs to post earnings of around $195M, or roughly a 650% increase in earnings. This seems... unlikely, to put it mildly.

So, Mr. Armstrong, it may well be that the shareholders do believe in the current strategy... but they may well be delusional. A PE of 85 on earnings of $30M is just unsustainable for a company with 5,660 employees, and I just do not see that AOL is going to be the company to solve the content-monetization crisis. Incredible to believe that AOL Time Warner was once a hundred billion dollar company.


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