Weekly Market Wrap Up, January 31-February 4, 2011

AOL Inc. Purchases Huffington Post at 10x EBITDA

AOL Inc. announced on Monday morning that it will acquire liberal newspaper giant The Huffington Post for $315 million, at a cost of over half of the firm’s cash reserves. The firm paid a multiple of 10x EBITDA with $30 million in current EBITDA as a result of the deal. AOL is attempting to reinvent itself after its unsuccessful merger with Time Warner back in 2000 and after spinning off from Time Warner in December 2009. The company is greatly seeking other sources of revenue to replace its declining subscription segment. AOL CEO Tim Armstrong stated in a CNBC interview that the future of AOL is to be the “next American media company to become global” with the Huffington Post as the firms’ “next ABC or ESPN.”

AOL’s two primary sources of revenue are derived from its subscription and advertising segment. The subscription segment has faced increased competition as a result the burgeoning social media market from firms like Facebook and Twitter. The latest quarterly report revealed that AOL Inc. experienced a 27% drop in advertising revenue and a 26% decline in overall firm revenues. The firm also reported a net loss of $847 million which has stoked investor fears that the firm may be attempting to buyout revenue in order to improve earnings figures. In its bid to reinvent itself with new acquisitions, AOL may face serious profit shortfalls if it fails to capitalize on its acquisitions.

Article submitted by: Michael Alfaro of the Capital Markets Lab. To learn more about the Capital Markets Lab please visit https://business.fiu.edu/capital-markets-lab/.