SAN FRANCISCO, Dec. 10 /PRNewswire-FirstCall/ -- Merriman Curhan Ford initiated equity research coverage today on AOL Inc. ($23.52), with a Sell rating.
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Equity research analyst Richard Fetyko highlighted these themes in his initiation report:
-- We are initiating coverage of AOL with a Sell rating. All of the company's segments are in decline, including the largest and most profitable one, Subscriptions, which is in secular decline. Moreover, as the subscriber base shrinks, it will also drag down the pageviews in the AOL Media segment, making the turnaround even more challenging. The Google contract (18% of revenue) will expire in 2010 and likely renew at less favorable terms. We believe that revenue and cash flow declines (organically) will not stabilize until 2012. We would be buyers of the stock approximately $15-18 per share. -- Our DCF analysis yields a $25 share price; however, with no visibility into the AOL Media segment turnaround, we see the stock going to $15-18 range before it stabilizes. EV/EBITDA valuation does not make sense since EBITDA is declining for next few years; hence, the valuation multiples will actually worsen. We do not see AOL as an acquisition candidate near term, at least until the search contract renews, which is at the end of 2010.
Members of the media can obtain a copy of this Merriman Curhan Ford research report by e-mailing the Equity Research department at editorial@mcfco.com.
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This research has been prepared by Merriman Curhan Ford & Co., a wholly owned subsidiary of Merriman Curhan Ford Group, Inc. Some companies Merriman Curhan Ford & Co. follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies.
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Specific Disclosures -- MCF & Co. has not received compensation for investment banking services within the last 12 months, and does not expect to receive or intend to seek compensation for investment banking services in the next three months, from AOL, Inc. -- Within the last 12 months MCF & Co. has not managed or co-managed a public offering for AOL, Inc. -- MCF & Co. does not make a market in AOL. -- Neither Richard Fetyko nor a member of his household owns shares of AOL. -- Neither MCF & Co. nor its officers, principals, employees, or owners own options, rights, or warrants to purchase AOL. -- No MCF & Co. employee serves on the board of directors of AOL, Inc. -- Neither Richard Fetyko nor a member of his household serves on the board of directors of AOL, Inc. -- Neither MCF & Co. nor its affiliates beneficially owns 1% or more of an equity security of AOL, Inc.
Key to Investment Rankings (expected total share price return inclusive of dividend reinvestment, if applicable)
Rating Percent of No. of Description Percent of companies ------ Universe Stocks ----------- under research -------- ------ coverage from which MCF & Co. received compensation for investment banking services provided in the previous 12 months or expects to receive or intends to seek in the next three months ---------- Buy 76% 87 MCF & Co. expects 9% --- --- -- the stock price to -- appreciate 10% or more over the next 12 months. Initiate or increase position. ------------------- Neutral 22% 25 MCF & Co believes 0% ------- --- -- the stock price is -- fairly valued at current levels. Maintain position or take no action. ------------------- Sell 2% 2 MCF & Co. expects 0% ---- -- -- the stock price -- to depreciate over the next 12 months. Sell or decrease position. -------------------
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CONTACT: Richard Fetyko, Managing Director, +1-646-292-1446,
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