With the holidays around the corner, we decided to do a mini series about a few of the tech stocks that we follow all year long. We are the first ones to judge and criticize how these companies are run but as they say, it’s always much easier to criticize then to actually run a company. So we decided to go ahead and write a series about what we would do with these companies.
Management in the past few years
AOL used to be a dog in my opinion and even as recently as a few months ago, I would include AOL and Yahoo (YHOO) in the same sentence as IAC Interactive (IACI) as the worst managed web companies out there. Tim Armstrong’s arrival as CEO has certainly started to change my mind on AOL’s future and it’s much clearer to me where AOL is now headed - the focus has certainly been one of the big reasons why I will probably be going long on AOL in the near future. Acquisitions like TechCrunch, one of the most valuable blogs, are reasons why I believe that AOL is headed in the right direction. It remains a challenging business and a fairly complex one but I do have faith in Tim Armstrong’s leadership.
Click to enlarge graphs
AOL is a very decentralized company so judging it on the traffic at AOL.com would be very misleading. One of the most promising areas for AOL is Patch.com, its network of local websites which has been growing like crazy and could become the leading effort for AOL in the battle for local traffic. Just take a look at this stunning traffic chart:
AOL should be the leader in hyper-targeted and hyper-local websites with a two-fold focus: High quality content and a leader in online advertising.
- Keep Patch in high growth mode: Patch.com is growing amazingly quickly and I personally still have some questions about the cost structure. I think AOL is doing the right thing in keeping the roll-out pace frantic. AOL needs to take over the market before others like Yahoo can react, and figure out the revenues and costs later on. The structure and strategy looks sound so far.
-Start developing premium content on key properties: Some properties could be structured in a way to give users extra content for a monthly fee that could add to AOL’s recurring revenues.
- Add a Sports Network: AOL does have some sports properties such as FanHouse but I think it could eventually take much more of a leadership role and compete with ESPN.com. It will be a long term project but I think AOL has everything required in order to make it work.
- Buy Yelp ($265M): Yelp information, sales force and user base could easily be integrated with Patch in order to consolidate itself as the top local network.
-Buy EveryDayHealth ($460M): It is one of the leading “health” blogs and seems to fit perfectly within AOL’s strategy.
- Buy Sugar Inc ($250M): AOL continues to have a lot of cash to spend and I would concentrate on getting more high quality content in order to optimize the advertising efforts and technology. Sugar Inc is a leading network and would fit very well within AOL’s strategy.
- Buy the Huffington Post or NY Times: These are both very difficult and expensive acquisitions but if it makes sense for one company to buy them, AOL is the one in my opinion. It would be able to leverage its technology and advertising sales force to optimize the return on both investments. The NY Times would be a very intriguing combination and would certainly result in a very much improved web strategy for the legendary newspaper.
Initiatives/Priorities I would get started on in terms of advertising
I think the key point for AOL would be to quickly get access to better advertising technology and a superior sales force in order to offer the best solutions for online advertisers. I think AOL is well positioned to compete with Google (GOOG), Microsoft (MSFT) and Yahoo for the big names such as Coca-Cola (KO) and GM.
Any thoughts or ideas?
I would love to hear your thoughts or ideas regarding all of these initiatives!
Disclosure: I am currently short AOL