Bank of America Downgrades AOL to Neutral, Noting Disappointing EBITDA Outlook

In a report published Thursday, Bank of America Merrill Lynch analyst Joyce Tran downgraded

from Buy to Neutral and lowered the price target from $56.00 to $50.00 following fourth quarter results. AOL reported fourth quarter earnings on Thursday. The company posted a Q4 EPS of $0.64 above the estimated $0.60. Ad revenue growth was up 23% y/y versus 14% growth in the third quarter. Quarterly profit was reported at $36 million, or $0.43 per share. Revenue increased 13% to $679 million. Despite AOL delivering the strongest revenue growth in a decade, Tran noted management's disappointing EBITDA outlook. The analyst commented, “While AOL had turned around the advertising business with revenue and profit growth and had a record 4Q, we think our thesis had played out and based on its 2014 outlook, we no longer see upside to our estimates.” Bank of America lowered 2014 revenue estimate from $2.55 billion to $2.48 million and EPS from $2.41 to $2.02. The analyst noted that these revised estimates are based on higher opex as AOL will “likely continue to invest.” Tran additionally lowered 2015EPS from $2.62 to $2.12, assuming lower revenue. The analyst reported an estimated 15% and 10% ad revenue growth in 2014 and 2015, respectively. Shares of AOL closed at $47.15 on Thursday and are currently down 1.76% in pre-market trading.