Shares of AOL, Inc. Pop on Better-Than-Expected Results -- There May Be More to Come

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What:Shares of AOL rose 10% on Friday after the company announced first-quarter results that came in ahead of analysts' expectations with regard to both revenues and earnings per share.

So what:Here's how the headline numbers shook out:

*Adjusted Source: Thomson Financial Network, AOL

Year-on-year revenues rose 6%; however, adjusted earnings per share fell 3%. Within its largest segment -- "Global advertising and others" -- two of the three main revenue lines, AOL Properties Search and Third Party Properties, grew 19%. However, AOL Properties Display fell 4%. The other segment, Subscription Revenues, fell 6%.

Although the company did not provide new guidance, Chief Financial Officer Karen Dykstra hinted that an upside revision could be in the works once half-year results are known:

Now what:At a forward price-to-earnings multiple of 16 and a price-to-cash flow multiple of eight, per research firm Morningstar, shares of AOL look pretty cheap -- particularly relative to the broad market, where the valuation looks stretched. The below-market multiples may help explain why the shares popped today.

Still, it's not the type of business I'm attracted to, as it faces significant uncertainty and secular headwinds: AOL is an also-ran in a winner-takes-all industry. It's hugely difficult to account for that in coming up with an appropriate valuation, but it does indicate AOL shares deserve some sort of discount to the market multiple.

The article Shares of AOL, Inc. Pop on Better-Than-Expected Results -- There May Be More to Come originally appeared on

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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