AOL (NYSE: AOL) appears to be aiming to sweeten alarmed investors by repurchasing $250 million of its outstanding common stock.
The surprise stock repurchase will shore up earnings-per-share for holders of remaining shares.
The purchase is significant. At AOL’s current price of $10.22, its $250 million would buy it 24.5 million shares, or 26 percent of the 106 million outstanding shares. But the buy-up will be rolled out over the next year rather than all at once.
Until this month, AOL stock had been largely flat over the last 12 months. But, by Wednesday’s market close, quarterly earnings AOL reported on Tuesday had wiped 36 percent off the price. Its market cap is now just over $1 billion.
CEO Tim Armstrong: “We believe this stock repurchase makes sense for both our company and our shareholders. We are continuing the disciplined execution of our strategy and have confidence in our future growth prospects.”
CFO Artie Minson: “This announcement highlights our strong balance sheet and solid cash flow generation. We believe this is a unique opportunity to invest in our company.”
There was little hint that a buyback program was imminent during Tuesday’s earnings call, when AOL boasted of its first reported ad growth since 2008 (total ad dollars were up 5 percent, as display rose double digits).
However, AOL also said that Q3′s turnaround in ad revenue gains appeared to be stalling — there was no growth in June and July, said CFO Artie Minson. On top of that, the company said that it would be pulling back on its forecast for reaching profitability, saying it now expects a profit of roughly $355 million in constrast to something in the range of $425 million earlier.
That was enough for investors, who fled the stock – at one point, sending share prices down 30 percent by Tuesday afternoon, though it recovered a bit by the end of that day. Nevertheless, when the smoke cleared, AOL had lost roughly 20 percent of its market value.
During the earnings call, one of the first questions was whether AOL, which had been sitting on a good deal of cash even after several acquisitions, including the $315 million purchase of The Huffington Post earlier this year.
Although AOL executives have repeatedly said during past calls that they feel the stock is undervalued, Minson appeared to wave off the idea of a buyback, though it’s certainly been considered. He said the company was “in a comeback mode.”
“At this point, a buyback certainly would be in the consideration set for us along with other opportunities we have, but stack ranking of a buyback, versus opportunistically having that cash available, we’ll settle through the integrations we’ve done. I think we’ve been more focused on settling through the integrations, growing products and services and focusing on the future growth, than we have been locked into any specific plans around buybacks.
Minson went on to tell analysts that day that “operational results are going to be fastest way for us to bring the value of the stock up,” not a stock buyback. Still, with investors losing patience and the stock price now $10.49 — from from $11.19 at the close on Tuesday, there was no time to wait for operational results.