AOL Survives First Day Alone on Wall Street
AOL (now trading as AOL-WI) struggled on its initial day of trading independent from Time Warner Inc., generating lackluster enthusiasm from investors and analysts trying to predict the value of the re-designed business Tim Armstrong, AOL's CEO, would be building.
No place was this more obvious than in the Options market, where predictions around stock volatility are critical to setting prices. The difficulty reflected the uncertainty of the future value of the business based on the company's past performance.
Prior to the Time Warner merger, AOL entered the market in 1992 at a stock price of $11.50 and reached stratospheric heights, priced at over $70 by the summer of 1994. A $1000 investment in AOL back in 1992, would have returned 14,690% by April of 1995.
Time Warner stock closed at a 15 month high yesterday, as investors seemed relieved to see the AOL separation finally happen.
Analysts are mixed on what the prospects are for the future of AOL: UBS' rating is neutral, Merriman rates the company as one to sell, and RBC suggests the stock will perform with the market.
For the optimists to prove correct, the company must deliver innovative ad products to compete with Google, Yahoo, and Microsoft and build a brand that appears relevant to today's young, socially active Internet user. It must accomplish this while reorganizing its resources after laying off thousands of its staff across the AOL properties.
Faith in the company's strategy hinges on its ability to make itself relevant quickly through advertising technologies, emerging platforms, and by aggregating the massive amount of niche online content, known as the "long tail."
Update: AOL gained 3.5% on their opening price of $23.52 to close at $24.35 on Friday. The newly independent company got a boost on Friday after a less than stellar opening day.