Wall Street analysts simply don’t believe in AOL’s media strategy, and many are recommending that investors only buy AOL on the merits of its dial-up Internet service provider business, which still throws off tons of cash each year.
The WSJ’s Martin Peers isn’t even that optimistic. He suggests that AOL isn’t cheap compared with its ISP competition.
Given the latest restructuring, which involves $200 million of charges likely to be taken mostly next year, [Sanford C. Bernstein analyst Michael Nathanson’s] estimate of about a 25% drop in Ebitda to $743 million in 2010 seems reasonable. That means AOL is trading at 3.4 times 2010 Ebitda. That isn’t cheap compared with the other two publicly traded dial-up providers. Earthlink‘s valuation is 2.6 times and United Online is at 3.5 times.