Today the WSJ ran a story discussing AOL's sinking ISP business, all while adding a positive twist to this largely useless company using the commentary of Ross Sandler of RBC capital Markets.
Sandler suggests that AOL is not likely to compensate for rapidly declining ISP subscribers, and will eventually have to abandon its strategy of investing in content and opt to sell off the company piece by piece. I agree with him on that.
But then Sandler states that these assets combined could fetch $30 per share.
I highly doubt this price tag is feasible. But who knows, there's a lot of media CEOs who lack an understanding of valuation and strategy.
Even if this $30/share estimate is reasonable, the WSJ article fails mention that these assets will take a good deal of time to sell. And in the meantime, a drop in the stock market will also reduce the valuation of AOL's assets.
As a result, any estimates which attach a valuation to these assets must be associated with a discount rate that factors in both the risk of generating estimated cash flows from each business, as well as the risk of a market decline over the estimated time period required to sell these assets. I’m willing to bet (at least) the later consideration was not made. How do I know? Because I’ve never seen an analyst factor in relative valuation due to market risk.
The promo piece for AOL comes after management (if you can call it that) announced a 20% reduction in workforce. Although some sources state that 400 jobs will be axed, my sources report 900. Notably, these jobs are being cut from facilities in India.
When you have to cut jobs in nations where other U.S. companies continue to flock in order to take advantage of the much cheaper labor and operating costs, it really tells you what's going on.
A month ago, I gave my thoughts on AOL’s purchase of Huffington Post. Have a look.
Once again, the media is late to the party. And it has arrived on the scene in a drunken stupor, if not with intentions of deceit.
Understand that this kind of trash is typical of the financial media, because as you should realize by now, the media works for Wall Street and corporate America; the ones who spend billions of dollars on ads.
If you want to have a chance to be well with your investments, you need to stay away from the media. If you haven’t learned this by now, you probably never will.
As a side note, I didn’t come across the WSJ article through perusing the site. As I have stated in many times in the past, I tend to stay clear of the media except for factual reporting (which is rare). Even then, I have to verify these reports.
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