As we have written in the past, AOL Inc (AOL) needs to sell non core assets and focus on its large under-utilized platform. With the sale of its patent portfolio to Microsoft and possibly more sales of assets pending, we recommend that AOL buy undervalued Travelzoo (TZOO) to pursue a real revenue generating Internet strategy which could rival Priceline.com (PCLN) if given the proper resources and subscriber base.
The deal could be done very quickly by pointing your capable Evercore investment bankers to Ralph Bartel, who is the only decision maker at TZOO. He does not have the appetite to fund growth and is surely searching for a strategy to resurrect the shares of the company he founded more than 15 years ago. And make sure you buy the Asia Pacific assets as well. Because you have no debt, Ralph will probably accept a tax efficient stock for stock transaction. As you can see from Starboard Partners latest press release, your investors are only partially satisfied with the Microsoft transaction.
With a fresh supply of cash and the reduced amount of expenses from maintaining a patent portfolio of that size, which will save at least $15m per year, we again suggest that AOL pursue a transformational strategy of combining their strategically aligned platform with Travelzoo and create a viable competitor to PCLN by modifying the AIM iPhone app and using your large email demographically ideal subscriber base as a conduit to a potent rival to the name your price app from PCLN.
Now that the vault is open for sales, we think AOL Advertising (our estimated LTM REV 365m), comparable to ValueClick, Inc. (VCLK) both in terms of traffic and reach although generating approximately 66% of VCLK's revenue, can bring more than the patent portfolio. The sale or spin-off of this asset can help AOL/TZOO become a significant rival to PCLN virtually overnight.
After all, why would AOL try to become a legacy online media company by piling money into the Patch service and the Huffington Post when the likes of The New York Times Co. (NYT) has a market-cap of under $1 billion. We know the Huffington Post is a far cry from The New York Times.
The key to a compelling growth oriented online business for investors is to have a service which is sticky with consumers which can deliver real tangible revenues such as Priceline which has a market-cap in excess of $36 Billion. Travelzoo has the embers for such a service and AOL brings its millions of subscribers to the equation along with cash on hand and potentially more cash to come from further asset sales.
From an investor's perspective, we think that a viable number 2 to Priceline that is well funded with no debt and a running start with its existing relationships with hotels and airlines coupled with a formidable customer base will be a compelling story with real market appeal for both consumers and investors alike. In fact, it is a more worthy mission than becoming the next New York Times.
Disclosure: I am long TZOO.