CNN Money: Closing Patch would make AOL instantly profitable
“Closing Patch, which operates in 850 towns around the country, would make AOL instantly profitable.” That was the main attention grabber in a recent CNN Money article by Dan Mitchell. Like Yahoo, AOL is in the process of rediscovering itself. Once the king of online dialup for the novice internet user, time is slowly passing AOL, but CEO Tim Armstrong has seemingly put a lot of eggs in one basket, AOL Patch. Each one of those eggs represents the money, savings and future of investors who want to see profits before pipe dreams and with an expected loss of $160 million this year for Patch, investors are starting to become worried.
In August, AOL reported declines in revenue and spikes in overhead, due in part mostly to cover the costs of manning Patch outlets in over 800 cities in America. The company’s stock was riding around $20 per share, consistently for several months. However, that changed, and AOL’s stock price tanked in August and hit bottom at $10.22 in just a matter of days, prompting the AOL board of directors to issue a stock buy back program on August 11th which gave this internet Titanic a brief reprieve. As costs for the new service continue to increase, investors want to see profits, not visions or ideas. They want to know how the huge investment into AOL Patch is going to pay off for them.
All of the uncertainty has now cast shadows on Armstrong’s visions of a new era for AOL. “Tim Armstrong, the CEO of AOL (AOL), is a romantic. That’s laudable, not to mention rare in modern American business. Unfortunately, modern American investors don’t look favorably on romantics if they can’t bring profits along with their lofty ideals — especially modern American” CNN reported.
Problems are now mounting for AOL. According to a Reuters article this past week, one potential back up plan to save AOL may be slowly crawling off the table. “Interest in AOL from private equity firms ramped up after the company’s stock plummeted about 30 percent on dismal earnings results last month. Allen & Co and Bank of America Securities are advising AOL on strategic alternatives, including a possible sale, sources said. Problem is, the private equity firms have now turned their attention to Yahoo, which is reportedly seeking its own sale after firing Chief Executive Carol Bartz on September 6 and attracting the ire of activist investor Daniel Loeb.” Reuters reported in their feature “PE firms circling AOL turn attention to Yahoo“.
As if financial problems were not enough for AOL and Patch, senior executives within the startup are starting to jump ship. “Our parent company AOL is having a rough time making money from Patch, its rapidly expanding network of local news sites, and that’s not its only problem. Today, group buying website BuyWithMe announced that it has recruited Charlie Gray, formerly Executive Vice President at Patch, as its new ‘Chief People Officer’.”, reported Tech Crunch, a subsidiary of AOL.
As AOL closes out the third quarter and heads into the fourth, investors will be watching closely to see if there’s any light at the end of the tunnel, or will have to decide whether the grass truly is greener outside of the Patch. How much longer are investors willing to hang on to AOL stock as they watch the value of their portfolio plummet, while the company continues investing tens of millions of dollars into a dream project by the CEO? At some point, there has to be an indication of a financial pulse in the Patch startup.
What do you think of AOL Patch? Can Patch really save AOL or is AOL better off shutting down the project and selling their remaining assetts to a company who can give this media dinosaur a nice and profitable end of life hopsice for its investors?