Cantor Fitzgerald analyst, Youssef H. Squali, has raised his price target on AOL, Inc. (NYSE:AOL) stock from $45 to $47. The analyst’s revision, disclosed in a research note today, was based on AOL outperforming first-quarter (1QFY15) estimates and “early success with programmatic, video and mobile [world].”
Earnings Recap
AOL reported revenue of $625.1 million, beating the consensus estimate by $30.79 million. This growth in its top-line was based mainly on the 12% year-over-year (YoY) growth in global advertising revenue. The company’s operating income before depreciation and amortization (OIBDA) was reported to be $104.1 million, beating the consensus estimate of $99.3 million. This improvement was driven primarily by the profits in the Brand Group.
The company’s earnings per share (EPS) were reported to be $0.32, 2 cents higher than consensus estimates.
Mr. Squali made note of the accelerated revenue growth in the company’s Brand Group. He said the 8.2% YoY increase to $193.4 million surpassed the consensus estimates by 12%, due to “search marketing related efforts, solid multi-platform traffic growth, and mobile revenue.” He added that “margin is expected to rebound to low double-digits by fourth quarter of fiscal year 2015 (4QFY15) as display stabilizes, and get to 20% over time.”
The analyst also observed a 21.2% YoY increase in networks sales, which went up to $279.8 million, beating the consensus estimates by 6%. He also noted the 80% YoY growth in programmatic revenue, making it responsible for 45% of non-search ad revenue.
Mr. Squali also acknowledged the downside. He noted the decline in memberships, and mentioned that the company has a 1.4% monthly churn rate and 7% increase in average revenue per user (ARPU). He further mentioned that AOL is expected to report lower margins throughout this year.
The analyst commented: “AOL now seems close to start reaping the benefits of its investments, divestitures and sales reorganization, and entering a higher stage of growth and improving margins, despite continued drag from membership.”
He also mentioned that the company’s early success in programmatic, video and mobile “should reaccelerate growth and expand margins starting in 2016.” Cantor Fitzgerald currently maintains a Buy rating on AOL.
The overall sell side has mixed sentiments on AOL. Of the 23 analysts who currently cover it, 11 recommend a Buy, while 10 rate it a Hold. The 12-month consensus average price target for the stock is $48.42, reflecting an 11.51% return potential over the last closing price of $43.42.
AOL shares are currently up 0.3% trading at $43.55 as of 11:22 AM EDT.
