AOL Earnings Preview

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AOL (NYS: AOL) didn't hit the Street's expectations last quarter, but investors hope it will rebound this quarter. The company will unveil its latest earnings on Wednesday. AOL is a global Web services company whose business consists of online content, products, and services that it offers to consumers, publishers, and advertisers. [Disclosure: AOL is the parent of DailyFinance.com.]

What analysts say:

  • Buy, sell, or hold?: The majority of analysts back AOL as a buy. But with 58.3% of analysts rating it a buy, AOL is still below the mean analyst rating of its nearest nine competitors, which average 68.9% buys. Analysts don't like AOL as much as competitor Demand Media overall. Seven out of nine analysts rate Demand Media a buy compared to seven of 12 for AOL. Analysts still rate the stock a hold, but they are a bit more wary about it compared to three months ago.
  • Revenue forecasts: On average, analysts predict $524 million in revenue this quarter. That would represent a decline of 7% from the year-ago quarter.
  • Wall Street earnings expectations: The average analyst estimate is a loss of $0.07 per share. Estimates range from a loss of $0.14 to a profit of $0.02.

What our community says:
Most CAPS All-Stars are skeptical of AOL prospects, with 74.1% assigning it an underperform rating. Like the All-Stars, the community is also not a fan of AOL with 65.5% giving it underperform rating. Fools are skeptical of AOL and haven't been shy with their opinions lately, logging 123 posts in the past 30 days. AOL's bearish CAPS rating of one out of five stars falls short of the Fool community sentiment.

Management:
Revenue has fallen for the past three quarters. The company's gross margin shrank by 17.3 percentage points in the last quarter. Revenue fell 7.2% while cost of sales rose 21% to $403.4 million from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The following table shows gross, operating, and net margins over the past four quarters.

Quarter

Q2

Q1

Q4

Q3

Gross Margin

25.6%

29.5%

37.8%

39.1%

Operating Margin

(1.1%)

(2.1%)

32.1%

14.4%

Net Margin

(2.2%)

0.9%

10.8%

30.5%

For all our AOL-specific analysis, including earnings and beyond, add AOL to My Watchlist.

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At the time this article was published

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