AOL, Inc. PT Upped By Nomura, Goldman Bearish Pre-Buyout

AOL, Inc. PT Upped By Nomura, Goldman Bearish Pre-Buyout
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Is it really a good idea for Verizon to buy AOL? Some say it makes sense, while others were so bearish following AOL’s earnings report that it seems unlikely they see any value in the deal for Verizon. The mobile carrier offered $50 per share in a deal worth $4.4 billion.

Shares of AOL surged after the acquisition announcement, climbing as much as 18.83% to $50.61 per share.

AOL target price upped by Nomura

In a report dated May 10, Nomura analyst Anthony DiClemente and Kevin Rippey raised their price target on AOL from $46 to $50 per share following the company’s earnings report last week. The analysts noted that AOL beat revenue and OIBDA expectations, with the Platform segment posting strong growth of 21% year over year.

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Programmatic revenue soared 80% compared to last year, while net ad revenue increased modestly due to double-digit improvements in ad pricing thanks to a mix shift toward video and improvements in targeting. Profitability in AOL’s Brand segment was better than expected due to cost-cutting measures in the division, and AOL management remained positive in the company’s margins for the second half of the year.

The Nomura team maintained its Neutral rating but became more confident that AOL’s Brand and Platform segments will continue to show sustainable ad revenue.

Goldman bearish on AOL’s earnings

In a report on May 8, Goldman Sachs analysts Debra Schwartz and her team maintained their Sell rating and $38 per share price target on AOL. They were uncomfortable with AOL’s Brand revenue growth because they pointed out that it was “increasingly benefiting from search,” which other companies have demonstrated is not sustainable like the Nomura team suggested. For example, Google is focused on the quality of the results it provides in Search.

The Membership group also drove the upside in AOL’s earnings results, and the Goldman team said this is also an unsustainable way to push growth. Further, they continue to be concerned about rising competition in both ad technology and content.

Cantor Fitzgerald bearish on Verizon’s offer

Interestingly, Cantor Fitzgerald analyst Youssef Squali downgraded AOL following the acquisition offer from Verizon. He bumped his rating down two slots from Buy to Sell and set a $47 per share price target on the company. The reason for the downgrade essentially boils down to him not seeing the possibility of a bidding war arising for AOL.

So exactly what was Verizon management thinking in making a place for AOL? Sarah Kahn of IBIS World suggests that the shift to mobile makes the deal make perfect sense. She notes that consumers now see mobile internet as being essential, and AOL’s Platforms business will make a good addition for Verizon as it seeks to set itself apart from other mobile carriers. She adds that Verizon will benefit greatly from AOL’s positioning in “cross-screen digital media advertising trends” and that the mobile carrier will be able to expand its mobile video offerings, keep customers and draw others away from its competitors.

“Per the company’s latest 10k, AOL Platforms’ programmatic technology automates ad planning and buying, using technologies that match advertisers seeking to purchase advertising inventory and publishers that wish to sell the inventory,” Kahn wrote in a post today. “Its premium video platform includes the content, technology platforms and distribution channels for advertisers and publishers to access video advertisements at scale.”

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