AOL’s Tim Armstrong’s more worried about Main St than Wall St

April 30, 2009

AOL’s recently appointed chief executive, Tim Armstrong, has only been in place for three weeks but Wall Street is waiting impatiently for his next move. He’s started to shake up the ad team. Investors are focused on when parent company Time Warner will spin off the Internet unit, which has lost favor with Wall Street, advertisers and users alike.

Armstrong, gave his first interview since starting on April 1 to Ad Age Editor Jonah Bloom at the 4A’s advertising conference in San Francisco. Though he has declined doing interviews since he joined, AOL’s communications people said Armstrong was keeping a commitment he’d made while he still at Google.

The three-part interview can be seen at Ad Age here. The fireside chat covered topics like AOL’s branding, AOL’s undervalued ad space, and how Armstrong had to leave Google by the tradesman’s entrance on his last day.

Asked whether AOL’s standalone valuation could once again be worth $20 billion, which it theoretically was until Google wrote down its 5 percent stake in AOL to effectively give it a value of $5.5 billion in January, Armstrong said:

5.5 (billion) in my book is still a lot of money…I’ve said internally to employees Wall Street cares about you, and Main Street cares about you, and until we get Main Street caring about our company everyday (and) every time they touch the product and service, the valuation doesn’t matter because the worst case possible, the thing that happens at Internet companies is, you see, it is that people vote with their clicks and over time unique users go down.

At AOL, one of the things we’re focused on right now is how do you actually turn the unique users around and go in the right direction. More than valuation, more than anything else, if people are voting with clicks about our products and services, that will mean a lot more in the future of the company than the valuation.

Of course, Armstrong recognizes $5.5 billion is a lot of money because many Wall Street analysts now value AOL at between $2 billion to $3.5 billion. The analysts base their valuations on estimates of the terminally declining discounted cash flows from its dial-up business, along with estimates of cash flow from the struggling online advertising sales.

Collins Stewart’s Thomas Eagan says based on Wall Street’s average Time Warner valuation, AOL is even lower than that.

With recent events, we believe a transaction that will better monetize TWX’s value in AOL is approaching. That said, we continue to believe that the Street’s value of AOL, implied by the value of Time Warner stock, is too low. We estimate that the Street values AOL at approximately $1.6bn, less than half of its real value.

We’re sure Armstrong, who was brought in by Time Warner chief Jeff Bewkes to oversee the likely spinning off of AOL, will agree his company is undervalued.

(Photo: Reuters)

One comment

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I actually think AOL is overvalued right now. THey have been shedding customers and ad revenue is dropping so where is the value?

Posted by John Scott | Report as abusive