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AOL (AOL) Acquires Gravity for $83M

Stocks in this article: AOL

NEW YORK (TheStreet) -- AOL  (AOL) announced it had reached a deal to acquire Gravity, a Web content personalization company, for $83 million.

Shares of AOL fell 0.55% to $49 on Thursday. 

According to the agreement, $7.7 million will be deferred and paid over the course of two years once the deal is finalized, which should take place in the first quarter of 2014. AOL also announced that it would take on about$12 million in net operating losses, which could yield a future cash tax benefit of approximately $5 million.

Gravity's technology uses graphs that map out a person's interests, preferences, habits and more and then lets companies provide personalized content, both editorial and advertising, to the user.

"The Web is moving to the era of personal, and a personal web filter will reshape how consumers get information and services," said AOL Chairman and CEO Tim Armstrong in a company statement. "Gravity is joining AOL to lead the personalization transformation of AOL's brands and platform partners."

TheStreet Ratings team rates AOL INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about its recommendation:

"We rate AOL INC (AOL) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, AOL's share price has jumped by 75.25%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AOL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.1%. Since the same quarter one year prior, revenues slightly increased by 5.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although AOL's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.15, which illustrates the ability to avoid short-term cash problems.
  • AOL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AOL INC increased its bottom line by earning $11.02 versus $0.14 in the prior year. For the next year, the market is expecting a contraction of 81.5% in earnings ($2.04 versus $11.02).

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