Faced with a hemorrhaging stock price, AOL announced a $250 million stock buyback program over the next 12 months in an attempt to stop the bleeding on Thursday morning. The company's chairman and CEO Tim Armstrong did his best to stay positive about what's being interpreted as an emergency measure to recover part of the 30 percent drop since the release of a mixed second quarter earnings report earlier this week. "We believe this stock repurchase makes sense for both our company and our shareholders,” said Armstrong in press release. “We are continuing the disciplined execution of our strategy and have confidence in our future growth prospects.
It's not totally clear how this is going to work out for AOL. Armstrong had tried to put a positive spin on the company's second quarter earnings report earlier this week, playing up the results that AOL only lost $11.8 million in the quarter compared to $1 billion in the same quarter last year. Because AOL can't act like a shareholder, the buyback will result in the reduction of the number of shares on the market, thereby increasing the value of each share.
There are some winners and losers in this scenario. Quite apparently, the shareholders are the winners. Those who didn't join in the fire sale of AOL stock over the past few days now have the chance to recover some of their losses. Among those winners, as The New York Times points out, is Arianna Huffington, who sold The Huffington Post to AOL earlier this year for $315 million and claimed to have taken 25 percent of her cut in AOL stock, was bullish on he company. “I think if you buy some AOL stock right now, you’re going to make a lot of money,” she said at Michael Arrington's TechCrunch on May 23. At the time AOL's stock was trading at around $20, while it's now just over $10.
The falling share value only turns up the pressure on her to turn AOL's content strategy around has increased. As Clayton Moran of The Benchmark Company told Forbes's Jeff Bercovici's ahead of the earnings report, "From an investor’s standpoint, [AOL is] a declining access business with strong cash flow that supports two bets, HuffPo and Patch, and they really need one or both of those to be successful in order to turn this stock and this company around."
The biggest loser is Tim Armstrong. In wondering why he wanted the job as AOL CEO to begin with, Eric Jackson at Forbes argues that regardless of his reasons, Armstrong will emerge with a hit to his reputation in the business world:
It hasn’t worked out. Armstrong’s own judgement will be justifiably questioned by him taking the job. Many will also now see his past Google success as a function of the AdWords business model and him being in the right place at the right time, rather than innate sales and leadership skill.
This article is from the archive of our partner The Wire.