AOL's Way Forward Has Never Been More Clear

Tim Armstrong Thumbs Up

Photo: skewgee

Today is the day AOL begins paying shareholders some of the $1 billion it got from selling patents to Microsoft.Kara Swisher reports AOL will begin using that money to buy back some of its stock.

In anticipation of this day – and because AOL has effectively trimmed its costs over the past few quarters – Wall Street has richly rewarded the company’s stock; it’s up 78% year-to-date. 

The stock is also now up ~30% since AOL bought the Huffington Post for $315 million in February 2011.

What does this all mean?

We  asked a source who is no longer at AOL, but is deeply familiar with Tim Armstrong’s plan to turnaround the company.

Here is that person’s analysis.

Armstrong has learned that Wall Street will reward him for “finding pots of gold” and giving it to them through buybacks or dividends.

He’s also learned that Wall Street will reward him for effectively managing AOL’s costs.

He’s learned that if he bribes shareholders and watches costs, Wall Street will “forgive” a big, long term investment that doesn’t pay off right away, like AOL’s $315 million Huffington Post acquisition, its $30 million purchase of TechCrunch, or the $150 million or so it sunk into Patch last year.

That’s important because AOL’s core business is still shrinking, and Armstrong will not be able to grow it again without spending big to either create or acquire media brands on the Web.

So, we should probably expect  AOL to sell off more assets. This source says candidates include AIM, MapQuest, and Ad Tech. This should raise hundreds of millions of dollars. 

From there, it’s just a balancing act for Armstrong. He’ll pend some money investing in a core business of the future and spend a little more keeping shareholders of the present happy, managing costs the whole way. 

Eventually, AOL will either start growing its revenues again – or Armstrong will run out of runway and the jig will be up.

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