New York based AOL Inc. (AOL, Financial) is experiencing some serious headwinds. Last week the company issued memos to 150 people from its advertising sales department. The axe fell on 3% of its staff, mostly sellers, sparing the account managers. The justification given by the company was a shift of focus to programmatic advertising which is less dependent on human resources. This move did not surprise many as the once-renowned player in online content is struggling to sustain its market share. The company has reassured the clients that despite the downsizing of the advertising sales team and shift to automation there will be no change in the quality of services provided to them. But clients seem to be less convinced with the reassurances by AOL as they feel that the account managers retained by the company are not in the best frame of mind compounded by the fact that they will also be vulnerable to unpleasant situations within the operations group.
The company is all set to relieve itself of the flab on the strategic front as well. It has shut the gaming website Joystiq and Apple’s news site TUAW has been merged into Engadget.
Positive movements
Following peers like Yahoo! Inc. (YHOO, Financial) and Google Inc.’s (GOOG, Financial) YouTube, AOL is in the process to transform its infrastructure into a video ad platform. The company started working in this direction a year back with the acquisition of video advertising platform Adap.tv and Vidible, a video management and exchange platform. AOL already reported a 37% rise in programmatic advertising in the last quarter.
Undercurrent
There is a lot brewing beneath the surface. A month ago AOL stock surged 12% ($50) on the news that there was an informal proposal made by Verizon Communications Inc. (VZ, Financial) for an acquisition or joint venture to expand its mobile-video offerings. The Verizon CEO later denied any possibility of takeover but did not rule out a partnership. If the JV comes through then the new entity will concentrate on programmatic advertising technology with a future online-video product. A few months prior to that, Starboard Value LP, a stake holder in Yahoo Inc. had urged that the company pushes for merger with AOL for swift returns.
There is an increasing amount of pressure from the stakeholders within and from external sources for key strategic decisions, which may include more on the consolidation front. But it is yet to be seen if AOL is open to merger or acquisition options. A lot will also depend on the Q4 results as the company’s progress report will decide whether going solo or merger will be on future cards.
Stock talks
In Q3, the company had exceeded the market expectations on sales front but fell short on the operating income front. AOL reported total revenues of $326.8 million against the market expectation of $623 million. An annual overview reveals that the stock has seen good amount of fluctuation in past one year. It was trading above $50 levels at the beginning of last year and dipped to $36 in June 2014. After some highs and lows, the stock made a recovery towards the end of 2014. Repeating last year’s trend, the stock had almost touched $50 in Jan 2015. It is currently trading in at $42 - $45 levels.
Final word
With all the hopes pinned on the new earning avenues the stock price is expected to jump by a few dollars, especially before the Q4 result announcement due on Feb 11. The stock is a good bet for short-term buy.
