Wednesday, February 03, 2010

AOL Where is The Pony?

AOL (AOL) announced Q4 results and closed the books on 2009. Declining revenues, declining subscribers. Tim Armstrong, Chairman and Chief Executive Officer said “We have a clearly defined strategy, and we enter 2010 incredibly focused on day-to-day execution.”

There may be a pony in here somewhere.

AOL is clearly a busted play. The strategy should be we are trying to fix it. Being focused on day to day operations is inadequate. Day to day operations are not working out. Morningstar profiles AOL with 50% of subscriber revenue coming from dial-up.

Something big and drastic needs to come into play. AOL presents with positive cash flow and no significant debt. So will they be able to sell the capital markets on a compelling story, raise capital and buy/invest into something?

AOL subscribers pay monthly. Yet the receivables stand at approximately $462 million which is equal to the quarters revenues for advertising. Your customers think it’s OK to drag their payments. AOL accrued expenses and other liabilities are approximately equal to your cost of revenues. You need to lean on someone to stay balanced. Which of course means you are not balanced.

The pony seems to be in a distant pasture blissfully unaware ....