Analysts at UBS say AOL finally has more upside than downside for investors.
They expect “signs of a turnaround” in the numbers before the end of this year, and because of that, they’ve upgraded AOL’s stock from “neutral” to “buy.”
AOL is actually able to charge more for “Project Devil” ads – those super huge ads AOL keeps saying advertisers love. UBS writes, “Our checks suggest that AOL’s Project Devil ads garner CPMs (or pricing) in excess of $30, well above the rates for traditional banner advertising.”
Meanwhile, AOL traffic has finally stablized and is now growing – particularly in video. “We expect [unique user] growth to continue to outpace the industry, especially given the expected tailwinds to HuffPo from the upcoming US election cycle.”
The upside is that none of that is priced AOL’s current stock price. “We value the legacy subscription dial-up business at roughly $14 per share. Adding back ~$4 per share of net cash yields a total of $18 per share effectively assigning very little value to the advertising business.”
None of this is to suggest that AOL will actually be growing, profits or revenues, by year’s end – only that the company will be then not be shrinking quite so fast. UBS predicts AOL’s last 2011 quarter will show a 5% revenue decrease year-over-year, and a 6% net revenue decrease year-over-year.