AOL’s newest hire, Jeff Lindsay, comes to the company from Sanford Bernstein, where he was a star Internet analyst, covering companies like Google, Baidu and AOL.
So, what did he have to say about AOL before he worked there?
He initiated coverage of the company on Dec. 10, with an “outperform” rating and a $31 price target. (AOL is trading around $26.40 today.)
At the time, he said: “This is a troubled business and the challenges of turning it around are formidable,” but added, “The new management team is the strongest since the original Case/Pittman/Brandt team that built the original company up to over $163 billion in market cap before the disastrous deal with Time Warner.”
Jeff saw three positives in the company:
- There was upside in its premium display business. AOL was discounting inventory, and only had 1,000 accounts. Tim Armstrong and Co’s background in sales should fix that.
- AOL is a free cash flow machine. Jeff predicted $515 million in FCF for 2010, and $466 for 2011.
- AOL was making big headcount reductions. That kicked in $300 million savings clearing out “the dead wood that has stymied performance and innovation for the best part of a decade.”
He also saw challenges:
- AOL is hanging onto the dial-up business, not selling it. The critics will focus on its decline, which will hurt the stock. It should have just been sold for $1.1 billion.
- Google (or Bing?) search deal isn’t going to be as favourable this time around. In 2010 search is expected to be worth $570 million in revenue. Next year, Jeff thinks it’s worth $530 million.
- Loss of TMZ hurts AOL’s entertainment division.
- Overseas business will vanish, at least initially.
More general thoughts from Jeff on the business:
- Management is strong, and has a vision it wants to execute.
- AOL realises it needs to produce its own content.
- AOL is ready to go after the “largely untapped” local advertising market.
- AOL’s ad recovery could come faster than Yahoo’s.