AOL retains full board, rebuffs shake-up bid

Albeit with challenges ahead, investors have benefited from a rising stock price in 2012 and likely took this factor into consideration.

By Benzinga Jun 14, 2012 10:56PM
By Scott Rubin, Benzinga Staff Writer

AOL (AOL) shareholders have rejected a bid by activist investor Starboard Value to shake up the company's board of directors. 

AOL's slate of board nominees, which included CEO Tim Armstrong, were elected at the company's annual meeting in Boston. Starboard, run by Jeffrey Smith and with a 5.3% stake in the company, was seeking to install three board members. 

AOL shares are up almost 70% this year as the company seeks to transform itself into a major player in the Internet advertising business. Shares, however, were under pressure on Thursday after the announcement, closing down 5.65% at $25.57.

AOL purchased Huffington Post for $315 million last year and is spending as much as $300 million investing in local news service Patch, which was co-founded by CEO Armstrong. "The company is re-energized and refocused, and we have one of the best brands in the Internet space," Armstrong told shareholders at the meeting. "We are going to grow the brand back to where it should be."

Despite the steps that the company has taken to transform its business model, more challenges certainly lie ahead for AOL. Investors are currently paying a premium for the stock, suggesting that there is some optimism that the company will be able to successfully rebrand itself. As of Thursday's close, shares trade at a P/E of 79.91, a forward P/E of 28.73, and a PEG ratio of 4.15. The stock does not pay a dividend.

Compare this to Yahoo (YHOO), which has also struggled mightily in recent years. As of Thursday's close, shares of Yahoo trade at a P/E of 17.45, a forward P/E of 13.59 and a PEG ratio of 1.22. Despite being a larger, more established player in the online advertisement business, Yahoo is trading at a substantial discount to AOL shares. Furthermore, it could be argued that Yahoo is slightly overvalued given its abysmal track record.

Short sellers are certainly somewhat skeptical about the future prospects for AOL, as around 12.50% of the float has been sold short. On Thursday, the selloff in the stock had pushed the shares below both the 20-day and 50-day moving averages -- which might be foreshadowing more losses ahead.

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