In Praise of AOL

NEW YORK (TheStreet) -- Tim Armstrong gets no respect as CEO of AOL (AOL).

He came to his current job with the brightest of halos thanks to being head of sales at Google ( GOOG). Expectations for him to turn around the company were so sky-high his struggles ended up seeming more disappointing than they ever would have were his last name Smith -- or Falco.

Of course, Armstrong did nothing to damp those expectations, so he must assume some responsibility for his apparent fall from grace.

However, it's time to really give Tim Armstrong his due. He has done a fantastic job over the last two years in turning around the fortunes of AOL for its shareholders.

Just think, almost two years ago, AOL was in the post-IPO doldrums. It had gone public in late 2009 in the low $20s. By August 2011, it seemed like the wheels had fallen off. The stock dropped as low as $10 after a poor earnings report. At that point, and still today, you couldn't find anyone bullish on AOL. Heck, you couldn't find anyone neutral on the stock.

Back then, not only did it seem like earnings were slowing but you had the recent high-profile mass defections from TechCrunch and Arianna Huffington's apparent unhappiness after the acquisition of Huffington Post by AOL.

The culture of AOL seemed to be a mess. You had warring factions of longtime AOLers, new propeller heads from Google who had followed Armstrong, and the other newbies from HuffPo who believed they had been doing just fine on their own before they got absorbed into AOL. (Many of these folks had been hoping HuffPo would IPO instead of getting acquired.)

Investors seemed to want nothing to do with AOL. I remember some seemingly bright portfolio managers telling me AOL was a lost cause because they (the portfolio managers) never used it. Many couldn't believe there were still so many dial-up subscribers who continued to pay AOL full price for Internet access.

There was also a lot of criticism of Armstrong at this time (and I partook in some of that myself). The shine had come off Armstrong. Many concluded his past success was obviously due to the Google money machine and not his strong selling skills. Others pointed to his quixotic effort to keep pouring money into Patch, AOL's hyper-local website strategy that seemed (and still seems) doomed.

It wasn't lost on people that Patch had been an angel investment of Armstrong's before his arrival at AOL. Armstrong seemed to be throwing good money after bad on a pet project for which he still carried a torch.

Of course, later in November 2011 Armstrong, AOL and the board came under even more scrutiny when an activist investor started making noises about a proxy fight.

Through all this, Armstrong kept on keeping on. He kept making the rounds of the media and investors telling the story, even if it seemed at times no one wanted to listen to him.

He also did a number of practical things. He got the board to use some of its remaining cash on stock buybacks starting in August 2011. He fought off the activists by talking to Microsoft ( MSFT) and Facebook ( FB) about selling part of its patent portfolio to them in exchange for a lot of cash. That was at the time that newbie Yahoo! ( YHOO) CEO Scott Thompson had authorized an attack on Facebook over patents.

Through all that patent fighting that enveloped the tech world with Apple ( AAPL), Google and others, AOL was the one company that made out like a bandit from the hysteria. The patent sale and then license back to Microsoft and Facebook was a master stroke.

No one -- not even these patent experts who occasionally go on business TV with bow ties -- ever thought AOL could wrangle a billion dollars out of anyone. It did. When AOL announced the deal, the stock rocketed over 43% in one day. When your stock is only trading for a billion and a half market cap and you do a billion-dollar deal, that's what happens. And it just kept going up.

Results steadied as well, in both search and display. The personality battles with Arianna and TechCrunch simmered down and both properties have continued to grow and develop. HuffPo looks like a particularly brilliant deal by Armstrong now several months on.

When the activists actually carried through on their threat to stick with a proxy fight last spring, they ended up with no credible arguments for why shareholders should vote to change AOL management. How could any shareholder complain about Tim Armstrong's leadership?

And AOL's stock? Oh, it just went up to a few pennies shy of $44 a few months ago and -- after the latest good earnings report -- appears heading back to pass that. That's a 340% gain in a year and a half, for those of you keeping score at home.

The most mind-blowing thing about that result is that no one -- as in zero -- has said anything congratulatory to Tim Armstrong. AOL never gets discussed other than the random comment, "Oh, wow... look at AOL... anyway, about Apple...."

For every dollar the stock dropped on its way to $10, you heard people piling on, and then nothing on this remarkable run.

So let me be the first to say, congratulations Tim and the rest of the AOL management team. I was wrong to criticize you folks. Everyone was wrong. All of you deserve to be called out for an outstanding turnaround of this company.

Congrats and continued success.

At the time of publication the author had positions in YHOO and AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.

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