AOL Shares Popped: What You Need to Know
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: Investors in Internet access and services provider AOL (NYS: AOL) were getting a very pleasing message today: "You've got gains." Shares jumped as much as 17% in intraday trading after the company reported fourth-quarter results.
So what: Looking at the final quarter's results on an absolute basis, there doesn't appear that there was a whole lot to cheer. Subscription revenue continued to decline -- as should be expected -- while advertising revenue was up a modest 10%. Total revenue of $577 million was 3% lower than the fourth quarter of 2010. The bottom line, meanwhile, got clobbered, falling from $66.2 million in 2010 to $22.8 million this year.
But here's the thing -- investors were widely expecting those declines. In fact, they expected the results to look even worse. On average, Wall Street analysts expected AOL to earn $0.16 in per-share profit on $573 million in revenue. So the $0.23 in earnings per share and $577 million in revenue was music to investors' ears.
Now what: When a quarterly "noteworthy item" is "AOL's total revenue decline was its lowest rate of revenue decline in five years," you know that you're not dealing with a company at -- or anywhere near -- the top of its game. The company has been making bold moves to try to turn the business around and continue to grow that advertising revenue line. Those moves include spending money to acquire sites such as Huffington Post and TechCrunch. Whether it'll all pay off for shareholders in the end and AOL will get back on track, though, remains to be seen.
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