AOL’s Huffington Post Acquisition Targets Greater Social Media Impact
AOL (NYSE:AOL) recently acquired Huffington Post for $315 million is another deal in a series of acquisitions that AOL has done since its spin-off with Time Warner (NYSE:TWX) in December 2009. Since its spin-off, AOL has struggled to grow its advertising business. AOL’s revenues from the U.S. have declined from $152 million in Q4 2009 to $140 million in Q4 2010, [1] in spite of a general revival in the U.S. online advertising industry, which grew from $5.5 billion in Q3 2009 to $6.4 billion in Q3 2010, a growth rate of 17%. [2] This indicates that AOL’s market share has been slipping against competitors like Google (NASDAQ:GOOG), Facebook and Yahoo (NASDAQ:YHOO).
In the past year, AOL has made relatively smaller acquisitions of less than $50 million including StudioNow, TechCrunch, 5Min Media, Thing Labs and Pictela. However, Huffington Post is a major acquisition compared to AOL’s market cap of around $2.3 billion.
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Can these acquisitions help AOL make a comeback in the display advertising market? We currently maintain a $23.80 Trefis price estimate for AOL stock, which is about 12% higher than the current market price.
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AOL looks to boost its advertising revenues
Before Huffington Post, AOL’s acquisitions were mainly aimed at strengthening its content, which included video syndication. However, Huffington Post brings more of a social media presence where online readers can share news, post comments and contribute to blogs. This is personalizing the way people consume news and making news more social and so aggregator sites like Huffington Post are growing traffic rapidly.
The Huffington Post aggregates about 300 stories from other publications and publishes a similar number of original stories and original blog posts. A few months back, we covered a story on how Huffington Post has grown so rapidly such that its valuation is more than New York Times Company’s (NYSE:NYT) online business if we treated it as a standalone business (See Huffington Post Worth More Than NY Times Online as a Standalone Business).
These acquisitions are not only aimed at increasing the traffic to its site, but also improve advertising monetization opportunities. For example, its acquisition of StudioNow (See StudioNow Acquisition Can Boost AOL’s Ad Revenue) and Pictela (See Success of Project Devil Could Create 13% Upside to AOL Stock) were aimed at improving RPMs.
If AOL can leverage these acquisitions and gain advertising revenues, it could gain share in the online advertising market.
If you toggle through our slideshow below you can drag the trend line to see how forecast changes to items like page views, number of visitors and gross margins impact AOL’s stock price.
See the complete $23.80 Trefis Price estimate for AOL stock.
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