Tim Armstrong went on Bloomberg Television after trading hours on Feb. 7, 2011 to discuss his company's recent acquisition of Huffington Post for an astonishing $315 million. Armstrong sounded optimistic to say the least when boasting about the deal and pom-poming its founder, Ariana Huffington (who will now be AOL's editor in chief for news content). If your an investor in AOL, listen closely and see if you believe the vision that Armstrong trying real hard to sell.
After watching this interview, one has to wonder what's Armstrong smoking? Sure, his belief in content production and its revenue generating strategies is one thing. But I don't think that paying the Huffington Post 30 times its annual operating cash flow is a smart business decision in any school of finance.
AOL "expects" Huffington Post's annual operating cash flow in 2012 to be around $30 million; but I feel that's really stretching the imagination. In episode #17 of the True Capitalist Radio Show, I had several AOL investors call into the show with concern about this deal; asking for advice on their next move on this stock. I personally feel that this was not a wise use of a company's capital, and if I owned AOL right now; I would start looking for more profitable short term instruments.
One thing I think that will come about from this questionable move by AOL is a potential corporate buy out frenzy. I think these types of buy out deals (based on speculated future earnings) are going to be a habitual norm in the coming year and into next year, for corporate profits have been high for the past couple of quarters (which has given equities major gains). Companies are sitting on lots of capital and, just as AOL has done, they're going to use it to expand. Not to mention the Obama administration's new view on lowering corporate taxes! Is this going to be the 90's all over again?
Arianna Hiffington is currently voicing a fat, ugly bear in Fox's The Cleveland Show created by smug, liberal douchebag Seth MacFarlane.
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