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Why AOL, Inc. Shares Jumped

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.DL  )  rose more than 11% Thursday after the company announced a joint venture with Hale Global to hand over the reins of Patch, its unprofitable 900-site local news platform.

So what: Under the terms of the arrangement, AOL will contribute Patch into a new LLC, which will be operated and majority owned by Hale. 

AOL shareholders, for their part, should be happy to cede control, considering their company has been unsuccessfully pouring money into Patch in an effort to make the platform profitable since acquiring it in 2009.

What's more, today's partnership shouldn't be particularly surprising, especially when we consider AOL CEO Tim Armstrong already asserted, back in November, that they were expecting Patch to "move to run rate profitability by the year's end through a combination of operational changes and a partnership model for operations or strategic alternatives."

Now what: The news has also unsurprisingly spurred at least two positive notes from analysts, including both CRT Capital and Cowen Group. And while shares don't look particularly cheap trading at 48 times last year's earnings and 22 times next year's estimates, I have to agree that, with Patch out of AOL's hair, investors are right to breathe a sigh of relief, as their company will finally be able to focus on its more promising core business.

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Steve Symington

Technology and consumer goods specialist for the Fool. Steve looks for responsible businesses which positively shape our lives. Then, he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.

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6/23/2015 8:00 PM
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