AOL, still struggling to resurrect its brand in the eyes of Internet users, is having no trouble appealing to investors.
After adding more than 4 percent last week, AOLs shares have almost tripled in the past 12 months, eclipsing the performance of Apple, Google and Microsoft. The stock hasnt seen that kind of gain since the dot-com boom in 1998, three years before AOL merged with Time Warner.
The shares got their biggest boost from a deal on April 9 to sell patents to Microsoft for $1.1 billion, money that AOL is returning to shareholders through buybacks and dividends. Even after a surge that day, the stock has climbed an additional 39 percent since then, signaling that investors have growing faith in Chief Executive Officer Tim Armstrongs plan to turn AOL into an advertising-driven Web portal and news publisher.
AOL is in the early innings of our strategy, Armstrong, a former ad executive at Google, said in an interview. Our team is working hard to rebuild Americas first Internet company and the brand that took the world online. We have a lot more to do, and were doing it.
The shares gained 188 percent in the past 12 months before Oct. 10. That compares with 72 percent for Apple, 44 percent for Google and 12 percent for Microsoft.
The question now is whether AOLs fundamental business can maintain the rally. Victor Anthony, an analyst with Topeka Capital Markets Inc. in New York, is still waiting for a rebound in display advertising. Those ads, including banners, videos and other visual marketing, make up most of AOLs revenue.
Analysts estimate that AOLs total sales will drop 2 percent to $2.15 billion this year, according to data compiled by Bloomberg. That follows declines in the previous two years under Armstrong, who took charge of AOL in 2009.
We are not ready to chase the stock at these levels because we still need evidence that the core display advertising business has been nursed back to health, Anthony said. To date, we have not seen that.
Other analysts are skeptical as well. Out of 16 analysts tracking the stock, nine have a hold rating.
The average price target is $35.47, below AOLs current level, signaling that the rally may be peaking.
Still, the dividend has attracted investors who wouldnt have considered the stock before, said Ronald Josey, a New York-based analyst at ThinkEquity LLC.
Clearly, AOL has natural buyers from that dividend, Josey said.
AOL, based in New York, was once the dominant provider of Internet access to U.S. consumers, back before the shift from dial-up connections to broadband eroded its main source of revenue.