Is AOL’s Fall On Proxy Win a Buying Opportunity?

CNBC.com

AOL

AOL's Tim Armstrong defeated a proxy battle by hedge fund Starboard Value today, with shareholders voting at AOL’s annual meeting to re-elect all eight board members.

But despite this victory today AOL’s stock has tanked, down over five percent today. Why the drop? Investors seem to be concerned that AOL’s victory reduces pressure on the company to cut costs.

Starboard criticized AOL for failing to do enough to make money off its patents, and for spending too much on original content for the web. (Here’s its letter to AOL.)

Instead, Starboard said AOL should aggregate content from across the web, at a lower cost to the company. The fund, which owns 5.3 percent of AOL also criticized its “money-losing Patch business.” AOL says it will “be responsive to the messages we heard from our investors,” but that clearly didn’t satisfy investors today.

But a number of Wall Street analysts see today’s dip as a buying opportunity.

Barclay’s Anthony DiClemente reiterated his $31 price target for the stock, saying it presents an “attractive short-term buying opportunity.” He points to four consecutive quarters of global ad revenue growth, and the fact that its display ad business will start growing revenue again in the second half of the year.

Now DiClemente is focused on AOL bringing its local-news service, Patch, to profitability and how it will distribute the proceeds of its $1 billion patent sale to shareholders.

Miller Tabak’s David Joyce recommends buying AOL on the dip, saying he believes the board will continue to execute on strategy. With a $34 target for the stock, he says he’d buy AOL simply because of the patent sale proceeds coming by the end of the year.

Wells Fargo also reiterated its “outperform” rating on the stock. Analyst Peter Stabler says he expects AOL to take some of the criticisms of Patch to heart, projecting the company will “aggressively explore revenue streams to complement local display advertising.”

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