Trade The AOL / Huffington Post Merger (AOL, MSFT, YHOO, GOOG)
In 2010, AOL suffered a 26% hit to revenues, a result of declining dial-up subscriptions and drops in advertising sales. AOL hopes that the Huffington Post, a growing news website, can help with these declines and even become mutually beneficial: the Huffington Post can become a news and media giant using AOL's resources, and in return, AOL receives a hip new makeover.
AOL has failed to keep pace with other internet and online advertising websites. Competitors such as Microsoft (NASDAQ: MSFT), Yahoo (NASDAQ: YHOO), and Google (NASDAQ: GOOG) have taken over the internet. Google holds the top spot with advertising sales.
The new objective for AOL is to become a media and entertainment powerhouse, according to Reuters. Perhaps a move away from revenues dependent on dial-up internet subscriptions will allow for a more profitable future for both AOL and the Huffington Post.
As of September 2010, AOL's cash balance almost doubled from the previous quarter; an indication that the company was planning a big move such as this. Glancing at AOL's financials, while revenues are dwarfed by competitors, assets cover liabilities three times over, indicating a strong financial position despite setbacks in revenues.
Investors may consider a long position in AOL as it attempts to adapt to industry expectations. With strong financials and a clear plan for moving forward, it may be a great entry point for investors confident in the arrangement.
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