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AOL Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of AOL (NYSE: AOL  ) fell 16% in early trading and closed down more than 15% on heavy volume after CEO Tim Armstrong said he'd like his company to become the No. 3 provider of online display advertising. ComScore currently ranks AOL fourth behind Facebook, Yahoo! (Nasdaq: YHOO  ) , and Microsoft (Nasdaq: MSFT  ) .

So what: Investors weren't impressed, and rightfully so. Armstrong told the audience at a Goldman Sachs conference that although the goal "may not sound ambitious," it was a step up -- or, more precisely, "a unique place to occupy." And I thought only lobbyists were so brazen.

Now what:  Chalk it up to Armstrong being OK with underachievement -- or, at the very least, making too little from new properties TechCrunch and The Huffington Post. Do you agree? Would you buy at current levels? Please weigh in using the comments box below.

Interested in more info on AOL? Add it to your watchlist.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn’t own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Yahoo! and Microsoft. Motley Fool newsletter services have recommended buying shares of Yahoo! and Microsoft and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2011, at 2:40 AM, Realexpectations wrote:

    It might sound like a good buy or cheap stock.


    We are long term investors

    do you believe aol will be double or trible in 3-5 years?

    Not that I am against it or anything.

    I just think theres better stocks to put your money on.

    Just feels risky.

    Ask all of your friends and family how often they go onto aol.

    then make your own choice in the end.

  • Report this Comment On September 22, 2011, at 9:27 AM, tjhans91 wrote:

    AOL is soo... '90s. If one wants to buy this, why not fill out the portfolio with RIM and Netflix?

    Forget it. The ship has sailed.

  • Report this Comment On September 22, 2011, at 10:08 AM, tldr wrote:

    This article's analysis is off. To be #3 in the display advertising space is a huge accomplishment -- it would mean unseating Facebook. And the stock is not plunging because of Armstrong's comments (at least that's not the prime reason).

    The prime reason why the stock is plunging is because it was previously inflated on buyout rumors. The stock first soared on Aug 25th when it was released that AOL had retained Allen & Co, the famous media investment banking house, and Wachtell, Lipton, Rosen & Katz, the famous M&A law firm, as advisors. Armstrong has voiced his frustration with the company's low valuation many times before and even received authorization for a $250M share buyback. Coupled with hiring of an investment bank and M&A law firm, investors believed Armstrong was exploring strategic alternatives to boost the stock price (i.e., a take-private transaction or possible sale of AOL in parts). The ousting of Carol Bartz and potential M&A activity from Yahoo! only raised the specter of a buyout of AOL.

    Late Tuesday, around 3PM though, Arrianna Huffington, the chief editorial officer of AOL, indirectly revealed that there were never any intention of merging with Yahoo. Additionally, Armstrong dismissed a question about selling AOL in parts and reaffirmed his singular focus on turning around the company. Combined, these two statements extinguished perception of a possibly buyout which is why the stock plunged back to pre-buyout rumor levels.

  • Report this Comment On September 22, 2011, at 10:10 AM, tldr wrote:

    er, possibility* not specter. Misunderstood meaning of the word >.<

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