AOL stock is on a sugar high at the moment, thanks to a fat one-time dividend the company promised shareholders after it sold patents for $1 billion.This sugar high is already coming to an end.
Ken Sena of Evercore just put out a note reducing his price target for AOL from $39 to $34, “reducing target ex-dividend.”
Here are Sena’s key points:
Adjusting target to reflect 1x dividend payment of $5.15 related to a portion of proceeds from the $1.2 billion patent sale to MSFT. Our target moves from $39 to $34, as such.
Revisit new revenue segmentation. Also, given that AOL is expected to reclassify five business segments into three, we revisit the new segmentation through an analysis of 3Q12 and provide our 4Q12 estimates on this basis.
Revenue estimates (unchanged) under new segmentation. On revenues, for the quarter, we are calling for $576 mm, flat y/y. This is driven by a 7% reduction in Membership to $222 mm (39% of revs), a 10% increase in Ad.com to $150 mm (26% of revs) and a 1.4% increase in Content to $204 mm (35% of revs). Detail on the new segmentation method is provided in this report.
OIBDA estimates unchanged. We currently expect $411 million in FY OIBDA vs. the company’s guidance of $400 mm, or $124 mm for 4Q12.
Equal-Weight Rated. Our Equal-Weight rating balances improved fundamentals, greater cost discipline and undervalued advertising technology assets against continued softness within its Content segment. However, we do see its recently announced revenue re-segmentation as better highlighting the value within AOL’s ad technology stack (Ad.com), which we have estimated to be worth approx. $1.2 billion, or $14 per AOL share. Our new $34 target implies AOL should trade at 7.6x and 17.9x our 2013 EBITDA and EPS estimates, respectively (incl. SBE). For detail on the value within AOL’s ad technology stack, please see our report, Sizing the Ad Tech Landscape .