Despite the incessant competition from giants like Google (NASDAQ:GOOG) and Facebook, AOL (NYSE:AOL) is down but not out yet as the company’s advertising business showed a 15% growth in revenue in Q3 vs last year. The company’s stock saw almost 12% growth since 1st November,  helped primarily by a robust growth in its affiliate (third party) advertising revenue.
AOL Still a Mixed Bag
While AOL’s operating loss was better than what was expected, the company’s results remain a mixed bag with revenue declines in both subscription (-22%) and search advertising (-15%) from last year. Having said that, we believe that AOL’s pre-Q3 market price was already reflecting the expected declines in these 2 operating segments given that competition continues to keep AOL restricted to a single-digit market share in the search segment.  The stock relief has undoubtedly come from healthy metrics in AOL’s display advertising, such as a growth in monthly unique visitors for both AOL Sites and Huffington Post, and traffic growth for community-based websites such as Patch.
However, investors should not be too excited just yet as AOL’s search and subscription would continue to weigh down on the company’s top-line growth in the future as well. What the company needs now is a consistent growth trend in its display ads for the coming quarters. This should at least make AOL’s core business more bankable for investors.
We have a revised price estimate of $14 for AOL stock, which is roughly 8% below the current market price.
Disclosure: No positions