AOL won’t officially become an independently traded company again until December 10 when CEO Tim Armstrong is scheduled to ring the bell on the floor of the New York Stock Exchange. When AOL announced the details of the spin-off last month, it was possible to estimate a valuation for AOL at about $3.15 billion, but as I noted then, we wouldn’t really know for sure until the shares start trading. Well, some shares already are trading ahead of the official spin-off, settling at around $24. With 105.7 million shares to be distributed, that gives AOL a market cap of $2.5 billion.
It seems like AOL’s value just keeps on going down every time you look. Now, the shares are being very thinly traded right now, and we could still see a pop on December 10. But what is more likely is that there will be continued pressure on the stock as existing Time Warner shareholders take the money and run. It doesn’t help that some Wall Street analysts don’t forecast any growth whatsoever in either revenues or profits over the next four years.
For investors, AOL is really a turnaround and cost-cutting story. But Armstrong is hoping to change that perception. For instance, JP Morgan analyst Imran Khan writes in a note that he came away from a meeting with Armstrong with the impression that AOL will “pull back premium inventory from Ad.com and begin monetizing this inventory at a fuller valuation.” AOL’s own sites command higher ad revenues than the ads on its Ad.com network, but since 2007 it’s been making AOL ad inventory available through its ad networks, pushing down the value of those ads. If Armstrong follows through with this plan, it would be a step towards creating more scarcity for the ads which run on AOL properties, and could perhaps lead to higher revenues.
Armstrong needs to find more ways to juice revenues and profits if he wants his AOL options to be worth anything. A year from now, how much will AOL be worth?