Why AOL Shares Soared


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Internet company AOL (NYS: AOL) surged 15% today after its quarterly results topped Wall Street expectations.

So what: The Web pioneer has struggled for years to stay relevant amid the rapid decline of its dial-up business, but a wide third-quarter beat -- EPS of $0.22 on revenue of $531.7 million versus the consensus of $0.18 and $520 million -- reinforces optimism over management's shift to an ad-based model. While dial-up continues to decline, advertising revenue grew for the sixth straight quarter, giving Wall Street analysts plenty of confidence to raise their valuation estimates yet again.

Now what: Management now sees full-year adjusted operating income before depreciation and amortization of close to $400 million, up from its prior view of $375 million. "We have positioned AOL for growth in 2013 and beyond with consumer and advertiser demand growing for our premium content and innovative products, video, services and ad formats," Chairman and CEO Tim Armstrong said. The stock is now up 160% over the past year and trading at a 30-plus forward P/E.

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The article Why AOL Shares Soared originally appeared on Fool.com.

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