AOL Is In Danger Of Rendering Itself Obsolete

Feb. 7.12 | About: AOL Inc. (AOL)

After reviewing AOL, Inc.'s (NYSE:AOL) latest earning release, the most important number we believe shines light on the company's losing strategy is the nearly $400 million reduction in cash year over year.
Motley Fool writer Tim Bruggar points out that AOL earned a third of what it did in Q4 of 2010 -- $22.8 million vs. $66.2 million last year. The revenue decrease in "Subscription" and "Other" revenue is $244.7 million juxtaposed to an increase in "Advertising" revenue of only $30.1 million. It's important to note that "Advertising" revenue is management's revenue of choice for their future.

Recenty, AOL announced it is ratcheting up spending by $30 million on yet another Huffington Post endeavor: a new digital streaming network, with no new advertisers signing on yet.

We believe the company is on a crash trajectory with a "bet it all" plan to get eyeballs to generate much needed advertising revenue growth. They can't continue to buy back shares, $178 million so far with $72 million to go, and spending money on new business ventures with paltry revenue growth. Our suggested combination with Travelzoo (NASDAQ:TZOO) or something like it is needed to avoid it being the next Kodak (EKDKQ.PK).

When comparing the year over year results, one number stands out from last year -- the goodwill impairment charge of $1.4 billion. Without that charge, it seems to us it would have actually made $631.9 million versus this year's $13 million. We have to ask if things are really getting better.

If management is really interested in becoming a media company, maybe it should team up with a tried and true media barron like Kirk Kerkorian, of MGM (NYSE:MGM) fame, who recently announced plans to get back into the movie business.

We created ChaPaVe Partners and the Tactical Tender Offer to align minority shareholders' interests with controlling shareholders' interests. We know these companies are often very incalcitrant and therefore often overlooked by activist investors. By reasonably showing a path to a compelling opportunity for all shareholders, we look forward to a transaction to unleash real value for the both AOL and TZOO. We invite private equity firms and other long term investors to contact us to participate in this effort.

Disclosure: I am long TZOO.