The Hottest Tech Stock Of The Year — AOL

Author: Scott Rutt
Published: November 07, 2012 at 1:38 pm
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Yes, you read that headline right, and no, it's not 1999 all over again. I am indeed writing this article in post-election 2012 and shares of AOL are indeed topping the tech charts for the year, up a staggering 188% as the company's turnaround begins to impress Wall Street.

AOL's turnaround, more than three years in the making, may not be quite as sexy as that of Yahoo and is certainly not as widely covered by the media, but as the company's ​latest quarterly results have shown, the turn at AOL is at hand and its faithful shareholders are being quietly rewarded with gigantic gains.

"We have a lot more work to do," AOL CEO Tim Armstrong said during the company's conference call,​ but that didn't stop global advertising revenue at the company to jump 7% to $340 million. AOL posted net income of $20.8 million, or 22 cents a share, compared to a loss of 2 cents a share in 2011.

So what exactly does AOL do these days? The company, believe it or not, still derives 36% of its revenues the same way it always has, by providing dial-up Internet access, mainly to those in rural areas with few other alternatives. However the big push at AOL since Armstrong took over in 2009 has been in its advertising business, which now accounts for 64% of revenues. That's the same advertising business that Yahoo is also looking to resurrect.

Google may be the elephant in the room when it comes to traditional desktop search advertising, but as the transition to mobile devices marches on, AOL, Yahoo and others are now beginning to realize that there is untapped potential in areas beyond search. AOL's $315 million investment into Huffington Post was once such area that is now beginning to deliver for the company, while its local news portal, Patch, is expected to net $50 million by years' end.

AOL's U.S. advertising business now ranks fifth behind Google, Yahoo, Facebook and Microsoft.​ Not too shabby for the company that helped introduce most Americans to the Internet in the first place.

With shares of AOL surging 15% on its earnings release yesterday, a pullback would certainly be in order before investors consider pulling the trigger, but over a longer timeline, AOL may just be the stealth Internet play they've been looking for, especially given how under-the-radar the company has been in 2012. ​

 
 

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Article Author: Scott Rutt

I'm a financial journalist at TheStreet.com covering the stock market, Jim Cramer and Mad Money. I also blog at ScottRutt.com and contribute to Technorati and others.

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