Internet Pioneer Slogs Its Way Back

11/08/2012 10:00 am EST

Focus: STOCKS

David Fried

Editor, The Buyback Letter

One of the most iconic names in the first generation of online services companies has had a rough go of it in the past decade but it's making a comeback say David Fried of The Buyback Letter.

Web services company AOL (AOL) is a new addition to our buyback model portfolio. In the last 12 months, management has reduced shares outstanding by 12.1%.

The stock had one of the wildest rides in the last dozen years. The company, which spans online content, products, and services for consumers, publishers, and advertisers, was riding high at end of the 1990s. It bought Time Warner in 2000 and created AOL Time Warner, the world’s largest media company.

But as broadband Internet became increasingly popular, AOL’s dial-up service lost popularity so much so that it reported a $99 billion loss by 2002. By 2009, it divorced itself from Time Warner.

Since then, it has begun a slow but steady comeback, hiring former Google leader Tim Armstrong as CEO. He has been optimizing revenue potential by improving content at AOL properties Huffington Post, Patch, Games.com, and blogs "TechCrunch" and "Engadget,” increasing global ad revenue, seriously confronting video through its own YouTube channels and its own video portal called On, and improving its e-mail service.

It’s a $3.36 billion company that is expected to generate about $2.13 billion in sales next year. It posted $2.15 billion in revenue for 2012.

Operating earnings have improved and should reach $1.16 per share in 2013 after hitting a low of 12 cents per share in 2011. The stock has returned 150% in the past year alone. Analysts believe the company is on its way back to being a solid name in the Internet space.

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