(AOL) reports Q4 earnings tomorrow; Citi analyst Mark Mahaney isn’t very excited.
Mark’s reiterated a “hold” on AOL, with a $29 price target.
He writes that AOL’s gross revenues will be down for the 16th consecutive quarter, “down 19% Y/Y vs. down 23% Y/Y in Q3 and down 23% in H1:09.”
Mark broke out AOL’s pros and cons.
- Significant Internet Advertising secular growth opportunity;
- Focus on the $10B+ Local ‘Net Ad opportunity is differentiated;
- Solid balance sheet with $100MM in net cash & generates $100MM in FCF per qtr;
- At approx 3.5X ’10 EV/EBITDA, valuation is the lowest of any Mid/Large Cap Internet Stock.
- Clearly deteriorating fundamentals, with EBITDA down approximately 30% in ’09
- Broad and sig. market share losses – in terms of basic Internet usage, Display Advertising revenue, and Search queries
- A significant profit hole from the structural decline of its Subscriber business
- Substantial competitive risk;
- An unproven (@ AOL) management team. We would pick YHOO as our Value Buy.
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