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 Internet portal operator AOL (NYSE: AOL ) jumped for joy today, rising as much as 13.4% on pretty average trading volume.
So what: Sales fell 6% year over year in the just-reported third quarter, while the year-ago earnings swung to a small loss and free cash flows were cut in half. As terrible as it sounds when I say it like that, the quarter trumped analyst estimates on both the top and bottom lines, and CEO Tim Armstrong says that he's got a little turnaround going on.
Now what: AOL is in the process of replacing subscription revenues for its services with rising ad sales. Wait a minute -- weren't we all supposed to do the exact opposite of that after the dot-com bomb blew up ad-reliant business models left and right?
Well, I guess it works until it doesn't. Viewed through more rose-tinted lenses, this was AOL's smallest revenue drop in five years, and Armstrong is putting $250 million of his money where his mouth is via a brand-new share buyback program.
Even after this sudden jump, AOL shares have fallen 41% over the last year. Eternally range-bound Google (Nasdaq: GOOG ) and sputtering Yahoo! (Nasdaq: YHOO ) are both absolutely crushing AOL's share returns. Maybe a Yahoo!-AOL merger wouldn't be so crazy after all, if AOL's newfound advertising strength could get in front of Yahoo!'s much larger audience.
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