- Multiple Yahoo executives have shot down the notion that it will acquire AOL, despite AOL CEO Tim Armstrong's desire for a deal.
- A potential acquisition was the greatest threat to my AOL short thesis. With Yahoo apparently off the table, I expect this stock to go into the $20s.
- Marissa Mayer's sentiments about AOL dovetail with my views on the company.
Yahoo's (NASDAQ:YHOO) CEO, Marissa Mayer, and its M&A chief, Jackie Reses have both crushed speculation that Yahoo would buy AOL (NYSE:AOL) with its cash from the Alibaba IPO. Mayer reportedly told Re/code that an AOL acquisition would be "small, unexciting, uninspiring, and backward-looking."
I argued in March that AOL, for all the hype over its digital media and advertising segments, was still largely reliant on its legacy subscriber business for profits. Mayer seems to agree, and is reported to view the Huffington Post as the only AOL property she'd be interested in acquiring.
AOL is down 10% since my original article, but it is still significantly overvalued. Its current valuation of ~$39/share implies 13% compounded annual profit (NOPAT) growth for 16 years. A more reasonable expectation of 8% compounded annual NOPAT growth for 10 years yields a fair value of only ~$22/share.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.