An Insider Bought 28,000 Shares of AOL, Inc. (AOL)

Page 2 of 2

AOL, Inc. (NYSE:AOL)’s peers include Yahoo! Inc. (NASDAQ:YHOO) and IAC/InterActiveCorp (NASDAQ:IACI). IAC/InterActiveCorp (NASDAQ:IACI) has been experiencing a higher level of both revenue and earnings, and while to some degree that company’s valuation already captures some future growth opportunities analysts consider the stock undervalued. Specifically, IAC/InterActiveCorp (NASDAQ:IACI) trades at 10 times consensus earnings forecasts for 2014 and at a five-year PEG ratio well below 1. We’d be interested in learning more about the company. Yahoo has been quite acquisitive lately, buying Tumblr and reportedly bidding for Hulu, and we’d certainly be concerned about integration risk there. With the stock price rising 75% in the last year as new CEO Marissa Mayer has also been shedding assets (and the company’ Japanese assets have risen in value) Yahoo! Inc. (NASDAQ:YHOO)’s forward P/E is 17.

We can also compare AOL, Inc. (NYSE:AOL) to Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT), as MSN Online and Google Inc (NASDAQ:GOOG)’s various offerings serve as competing Web portals. Google Inc (NASDAQ:GOOG) actually trades at a small premium to AOL and Yahoo! Inc. (NASDAQ:YHOO) on a forward earnings basis with a P/E of 16 (though the sell-side is assuming high earnings growth over the next year and a half). Last quarter net income grew 16% compared to the first quarter of 2012, though it still may be worth waiting for another quarter or two of results. While Microsoft Corporation is valued at 12 times forward earnings estimates, we’d be somewhat concerned that earnings will be temporarily high in that fiscal year due to the release of new versions of Windows and Office. We’d note that the stock has popped over 20% during Q2.

The insider purchase at AOL, Inc. (NYSE:AOL) is certainly large enough to be notable, but next year’s expected earnings leave the stock at a premium valuation compared to its peers. While AOL does certainly have a good deal of cash on hand, the same is true for many other technology companies. We certainly think that investors should take a closer look at IAC/Interactive, and it may be worth watching for future developments at the rest of the companies we’ve mentioned here as well.

Disclosure: I own no shares of any stocks mentioned in this article.

Page 2 of 2