You've Got Fail: AOL Disappoints Once Again

What was once the symbol of success in the 1990's has become the laughing stock in the 21st century. AOL Inc. AOL shares are plunging after the company reported earnings that missed Wall Street estimates and had weaker than expected numbers for its advertising revenues. The company reported a quarterly loss of 11 cents per share on revenues of $542 million. Wall Street had been expecting a gain of 4 cents on $530.37 million in revenues. Excluding one time items, the company earned 4 cents per share, in line with Wall Street estimates, but investors appear to be focusing on weaker than expected display advertising, which grew 14%, compared to estimates of 16%. Advertising revenue grew 5 percent to $319 million, as the company's purchase of Huffington Post helped. Dial up service fell 23% to $201 million. "AOL's return to global advertising growth for the first time since 2008 reflects the hard work of our team and another meaningful step forward in the comeback of the AOL brand," said Tim Armstrong, Chairman and CEO. “AOL is singularly focused on becoming the next great media company for the digital age and we have positioned the Company's best people, technology and assets in front of some of the largest opportunities on the internet.” Including The Huffington Post and the technology blog TechCrunch last year, AOL has more than 50 websites. "We have cleaned up and simplified our operations," Armstrong told analysts in a conference call today. "We're witnessing encouraging metrics in key growth areas, and we're seeing the beginning of this manifest in our reported numbers." In addition to the weaker than expected revenue from display advertising, the company lowered its outlook adjusted operating income before depreciation and amortization. It now expects adjusted OIBDA to be between $340 million and $370 million for the full year. Chief Executive Officer Tim Armstrong, who was initially praised as he came over from Google GOOG, has not been able to turn around the company as fast as investors want and continued declines in subscription revenues have caused some to question the company's viability. “The turnaround still remains questionable,” said Benchmark analyst Clayton Moran to Bloomberg. “Investors really have to wait longer to see if there's anything concrete that would signal this company can be successful.” Moran rates shares at "hold." The company is trading at 13 times forward earnings, not exactly cheap for a company that can not grow revenues. If Armstrong and team can not get AOL's act together faster, then we could see some pressure on the board, perhaps from an activist investor to change leadership. AOL is an example of a company that has been passed by. While no one is ready to see it ride off into the sunset, a few more failures and Armstrong and crew could be looking for work. At least Benzinga is hiring. ACTION ITEMS:

Bullish:
Traders who believe that Armstrong will be able to get advertising display revenue turned around might want to consider the following trades:

• Shares of AOL are incredibly cheap, and today's 20% sell off is probably well overdone. If it can get its act together on display revenues, shares could pop on this news.

Bearish:
Traders who believe that AOL is as dead as a door knob may consider alternate positions:

• If AOL can not get its display advertising revenues up, then the company will slowly, but surely fold unless it makes a drastic change to operations. Subscriber revenues are dropping sharply, and the only growth prospects it has is display advertising. If this fails, it will not end well.
  
  

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