AOL Investors Ask: How Much Longer?

AOL (NYSE: AOL ) CEO Tim Armstrong has asked investors to be patient as he
tries to turn around the struggling Internet media company. In 2012, the former
Google (NASDAQ: GOOG ) exec will have to show meaningful progress toward that
goal because some investors are growing tired of waiting. Starboard Value LP,
which The Wall Street Journal says owns 4.5% of the New York-based company'
stock is arguing that Armstrongs strategy to establish a broad lineup of
content sites, including The Huffington Post and TechCrunch is a failure. This
big investor estimates that these "display assets" are losing $500 million
before interest, taxes, depreciation and amortization, the newspaper said. The
article noted that Patch, a collection of about 800 local news sites, could lose
$150 million this year on a paltry $20 million in revenue. Interestingly,
Starboard doesn't call for the disposition of underperforming assets or for a
sale of AOL. Perhaps, the firm plans to seek representation on AOL's board
(the deadline to nominate directors is Feb. 25). A more likely scenario, though,
is that Starboard, which wasn't available for comment, doesn't think all
hope is lost. As Armstrong noted during the most recent earnings conference
call, AOL had a great third comparatively so third quarter. The company posted
earnings, excluding one-time items, of 16 cents, six cents better than Wall
Street expected. Advertising revenue rose 8%, even though overall sales slumped
6% to $531.7 million. On the earnings conference call, Armstrong spared no
superlative. "With our Q3 results, we now have three quarters in a row of
global display growth and two quarters in a row of global advertising revenue
growth," he said. "The trend has clearly improved after our 2010 year of
restructuring. Total revenue, which was down 27% a year ago in Q3 is down 6%
this year, the lowest rate of decline in five years." Still, Wall Street seems
to have little faith in Armstrong. It's easy to see why. AOL has lost about
$800 million since it was spun off from Time Warner (NYSE: TWX ) in 2009. A slew
of high-level executives have departed. Revenue is expected to keep sliding for
the next two quarters. The average one-year price target is $17.69, about 16%
higher than where AOL recently traded. But short of a buyout or a miracle, that
price will be hard to realize. Shares have slumped more than 35% this year.
Armstrong has failed to significantly boost traffic to AOL.com. The portal
attracted about 66 million unique visitors in July, making it the Web's 35th
most-visited site, according to data from Google.