Since its spin-off from Time Warner (NYSE:TWX) in December 2009, AOL (NYSE:AOL) has pushed forward with a variety of strategic initiatives to resurrect its struggling business. These decisions include several acquisitions aimed at driving traffic to its site and creating new opportunities for online ad monetization. AOL competes directly with Yahoo (NASDAQ:YHOO), Google (NASDAQ:GOOG), The New York Times (NYSE:NYT) and Facebook for online advertising dollars.
Our price estimate for AOL stock stands at $23.94, which is about 20% above market price.
Shift from Pure Online Advertising to Subscription-Based Service
Some companies have begun to diversify their online business from pure advertising to subscription-based service. NYT, for example, recently launched a new paywall for its online edition. Under this structure, NYT is offering a limited amount of content for free; “heavy users,” on the other hand, will be charged a fee.
Although a company’s shift from pure online advertising to subscription business creates new revenue opportunities, it also adds the risk of user attrition. These users often move on to other freely available content, especially if the subscription content is not particularly differentiated.
Much of Online Content Is Still Free
Due to the risk of user loss, many companies have avoided a move to the subscription model. For example, AOL depends heavily on the advertising revenues generated from freely available content on its site. AOL has not indicated any plans to foray into subscription-based content, even though its content has improved through recent acquisitions. Recent acquisitions like Techcrunch and The Huffington Post are still free content sites, and some might argue that these even have better content than many big-name subscription based sites.
(Chart created by using Trefis' app)
Can AOL Benefit From NYT’s Paywall?
Does this mean that AOL stands a chance to benefit from the risk associated with NYT’s paywall? AOL’s improving content strategy has definitely made this a possibility. NYT has about 30 million users that visits its site every month, while AOL has about 110 million.
If some of NYT’s loyal user base migrates to AOL, it could spark a jump in traffic on AOL’s sites. You can test this affect on AOL’s stock value by dragging the trend line in the interactive chart above.
Disclosure: No positions