AOL Inc. (NYSE: AOL ) CEO Tim Armstrong has been meeting with top shareholders
to push the idea of a sale to Yahoo (NASDAQ: YHOO ) sale, according to reports.
The scheme allegedly would allow the AOL and Yahoo partnership to stop competing
against each other and start dominating digital publishing. But AOL shareholders
shouldn't be fooled. This is just the latest boondoggle from AOL's inept CEO
Armstrong, a quick-fix meant to prove that he has accomplished something in his
tenure in the corner office or at least provide a smokescreen so he can make a
quick getaway. Yahoo isn't a target because AOL is trying to grow a business
long-term. It's a target to cover up Tim Armstrong's mistakes. Take it right
from the words of an inside source, quoted in The New York Times recently: As
far as Armstrongs desire for an exit, he doesnt want to be doing what he is
doing 18 months from now. He wants to be out, said a source familiar with
Armstrongs thinking. Hes an ambitious sort of guy and AOL is such an
afterthought. But he would definitely put his hat in the ring to run a combined
Yahoo/AOL. Who the heck cares what Armstrong wants? Is AOL his personal
plaything, or a publicly traded company with a clear obligation to its
shareholders? If he's such an ambitious fellow, Armstrong should have
something to show for his tenure at the company. Armstrong took over AOL in
March 2009, and it has been ugly ever since. The stock was spun off from Time
Warner (NYSE: TWX ) in 2010 and is off 40% since then while the broader stock
market is up by double digits. Armstrong was supposed to be a heavy hitter,
snatched away from Google (NASDAQ: GOOG ) for his online advertising savvy, and
AOL had hoped he would breathe new life into the struggling media company. Not
so much. AOL's revenue dropped by 25% from fiscal 2009 to fiscal 2010. The
company has seen 10 straight quarterly reports with year-over-year revenue
declines the most recent being a surprise quarterly loss in August. The culprit
a few months ago? Weaker-than-expected advertising growth. In fact, operating
income for the year could be down as much as 20% because of weaker ad sales. To
be fair, not all the blame can be laid on Armstrong. He was brought into a
company that was rapidly losing revenue from its dial-up Internet access
business and charged with plotting a new way forward with an ad-supported
business. Some of the revenue bottlenecks would exist even if ad sales were
booming. But they are not and that's the most disturbing thing of all. The
decline of AOL dial-up access is inevitable, and in the absence of a coherent
strategy to provide another revenue stream, the decline of AOL is inevitable,
too. Armstrong claims an AOL partnership with Yahoo could produce more than $1
billion in cost savings for the combined companies, according to sources. But
that's wishful thinking. After flailing around with an in-house editorial
strategy, AOL simply threw up its hands and bought out Huffington Post for $315
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