Trying To Spot The Next…… AOL ($AOL) ????

By: ispeculatornew
Date posted: 08.02.2012 (5:00 am) | Write a Comment  (0 Comments)

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It’s been an incredible turn of events really. AOL, the old giant that everyone was running away from is the best performing stock among the stocks that I follow or among stocks included in my Tech Stock Power Rankings. Clearly, I was dead wrong on this one… the stock has been crushing it, with shareholders more than doubling their money since the start of the year. Just take a look at the chart for this year:

How Did They Make It Happen?

The first step in finding such patterns is looking for the causes behind the performance… How great have their financial results been? Let’s see. Their Q1 and Q2 revenues are *almost* as good as Q1 & Q2 from last year:

Q1 2011: 551.4M
Q2 2011: 542.2M

Q1 2012: 529.4M
Q2 2012: 531.1M

Ok… so revenues are clearly no spectacular by any means. Profits must be insane right? Earnings per share

Q1 2011: $0.22
Q2 2011: $0.04

Q1 2012: $0.31
Q2 2012: $0.23

Clearly the profits are better than last. That being said, nothing that seems to justify the stock doubling but it is still growth. Never mind the fact that in 2009 and 2010 AOL was making a lot more than that.

So How Did AOL Pull This One Off?

Was it Arianna Huffington pulling some magical strings? Or Tim Armstrong launching a new innovative property? Or properties such as TechCrunch exploding? Not exactly. In face, a very big part of it was AOL’s decision to sell a big part of its patents portfolio which generated an unexpected cash flow! Its growth business (advertising) generated 2% growth…

If you don’t see anything that justifies its performance, I’m 100% with you. I don’t get it. Yes, AOL has a solid balance sheet, a good brand and a solid user base… but what else?

I personally can think of 2 companies that have the potential for such a tournaround: Yahoo ($YHOO) and Research in Motion ($RIMM). The problem with RIMM though is that while it has a lot of upside (if it sells part or all of the company), there is also the risk that the business will continue to lose momentum and end up dying… I personally think that Yahoo has a lot more potential. It will be an extremely difficult ship to turn around, but Marissa Mayer has at least given them a shot at it.

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