AOL, Inc. (AOL) Stock Rises On Strong 4Q Results

Updated on

The stock price of AOL, Inc. (NYSE:AOL) surged by nearly 8 percent to $33.90 a share during the midday trading on Friday. The jump came after the company reported strong financial results for the fourth quarter of 2012.

AOL, Inc. (AOL) Stock Rises On Strong 4Q Results

Based on the financial statement, the company’s total revenues during the fourth quarter was $599.5 million, a 4 percent increase from $576.8 million in total revenues recorded in the same period last year.

AOL, Inc. (NYSE:AOL)’s advertising revenues increased by 13 percent from $363.8 million to $410.6 million. Its search revenues were $103.6 million, a jump of 17 percent from $88.4 million while its revenue from global display is almost the same at $169.8 million during the same period last year.

The company’s third party network revenue increased by 31 percent from $104.8 million to $137.2 million.  During the three-month period, its subscription revenues dropped 10 percent from $194.6 million to $174.6 million.

“AOL returned to growth and generated significant value for shareholders in 2012. AOL, Inc. (NYSE:AOL) has strong momentum entering 2013 and is positioned to continue on our growth path by executing our strategy to build the next generation media and technology company,” said Tim Armstrong, chairman and CEO of AOL Inc (NYSE:AOL) in a statement.

The company’s operating income was $68.4 million, a 24 percent increase from $54.8 million during the same period in 2011. AOL said its net income increased by 57 percent to $35.7 million or $0.41 per diluted share.

AOL completed its commitment to return $1.1 billion to shareholders in 2012 by distributing a special dividend of $5.15 per share on December 14, to shareholders on record as of December 5. The board of directors also approved a $100 million shares buyback over the next 12 months. The company ended the quarter with $466.6 million cash and equivalents.

Analysts at Evercore Partners said under the new segmentation of AOL, Inc. (NYSE:AOL)’s business, Ad Networks serves as the primary driver of the company’s revenue (+37 percent ) year-over-year with Membership Group (incl. access subscription) contributed 100% to its bottom-line OIBDA result.

“Although we see valuation as attractive (our $34 target implies AOL, Inc. (NYSE:AOL) should trade 5.1x and 20.9x our 2013 EBITDA and EPS estimates, respectively , with a 7% FYF yield), we can see the potential for further upside should its Ad Networks business demonstrate margin leverage (target OIBDA mid-to-high-teens). On target margins, we could see this business justifying a $1.0bn value, or $12 per AOL share (~9x ’13 OIBDA multiple assuming target leverage is achieved).” the analysts said in their report.

On the other hand, analysts at Wells Fargo Equity Research commented that they were surprised by the company’s return to growth on top line. According to them, the continued growth of its revenue from third parties indicated that the path of investment behind and related tech assets are capable of providing further upside.

“New segmentation reveals surprisingly high corporate expenses, offering further OIBDA upside if meaningful efficiencies can be found,” they said.

Leave a Comment