12/23/2009- Citigroup equity research initiated coverage of AOL, Inc. (NYSE:AOL) with a Hold/Speculative rating and target price of $29 Wednesday.
Citigroup analyst Mark S. Mahaney said that of all the turnaround stories in the tech sector today (eBay (NASDAQ:EBAY, Yahoo (NASDAQ:YHOO) and Monster Worldwide (NYSE:MWW)), AOL is probably the "toughest one, given the current 28% Y/Y decline in its Subscriber base and 38% Y/Y decline in its EBITDA. With the foreseeable outlook for revenue and margin declines, it's hard to see a near-term Fundamentals-based AOL Buy call. But with a 3x EV/EBITDA valuation, its hard to see a near-term Valuation-based AOL Sell call."
Mahaney concludes, "We view the 'Net sector as having 4 potential Value plays - AOL, EBAY, IACI, and YHOO. It's possible that none of these can sustainably work in what is a Growth sector, but YHOO screens best: 1) Inexpensive -- 4X '10 EBITDA; 2) The potential for significant cyclical/secular recovery in Display Ads - YHOO will almost surely revert to growth before AOL, in our view; 3) Potential for significant margin expansion - with a proven cost-cutter as CFO; and 4) A very attractive Asian Internet Investment Portfolio."
