Goldman Sachs: Time To Sell AOL

In a report published Tuesday, Goldman Sachs analysts downgraded the rating on AOL, Inc AOL from Neutral to Sell, while reducing the price target from $44 to $38. AOL is expected to post its 1Q gross revenues short of expectations due to near term pressures resulting from its ongoing restructuring efforts. In the report Goldman Sachs noted, "As the company undergoes restructuring efforts within its sales force and consolidation of properties, we expect near term pressure on Brand Group sales growth and expect 1Q segment revenues of $163mn (- 9% vs. -1% in 4Q). Management expects an improvement toward 2H15." After accounting for costs savings resulting from the restructuring and the $50 million incremental investments planned for 2015, AOL is expected to report 1Q adjusted OIBDA of $103 million, in-line with the consensus expectations. AOL plans additional investment in 2015 in video programming as it focuses its Brand Group on fewer sites with greater scalability. The analysts expect this to have a positive impact. "Approximately 50% of traffic in 4Q came from mobile, and we expect to see mobile traffic share increase with investments in video. While the company is growing its native ad experiences on mobile and developing video ad products, we believe there remains a monetization gap with desktop," the report added. The analysts express concern over AOL's "relative ad underperformance longer term" as companies like Facebook Inc FB expand their "off-platform capabilities."