AOL CEO Tim Armstrong is jealous of the new Internet bubble, and he wants in.
Last week during a meeting with investors, Armstrong noted the high valuations of companies like LinkedIn and Pandora and concluded that AOL is "severely undervalued."
The Wall Street Journal quoted him as saying:
I believe if we had taken everything we showed you today separately and trotted it down a few blocks from here to Wall Street and showed them what we've seen, I think the valuation of this company would be dramatically different.
Could he mean that since weak companies like LinkedIn and Pandora have done well in their stock market debuts, despite earning little or no profit (Pandora actually loses money on nearly every transaction), a similarly weak company like AOL should be attracting more investor interest?
Or could he actually believe that AOL's future growth is a solid bet? If anything, the former option is the only one that makes sense.
Consider this: AOL's first-quarter profit fell 86 percent to $4.7 million.
Unlike the last bubble, investors aren't throwing huge wads of cash at every company related to the Internet or technology. The bubble is mainly limited to companies with some kind of social-media component. But AOL is pretty much a pure content play. And pure content (that is, material produced by paid staffers, with revenue coming from advertising) is still a struggling business with ad rates still in the cellar.
Armstrong's complaints are even more puzzling given the company's recent acquisition of the Huffington Post for $315 million. AOL's stock is down about 14 percent since early February, when the merger was announced.
More puzzling still is Armstrong's recent thinking out loud about possibly charging users for some content. HuffPo is the ultimate purveyor of free content. In a market where profit margins are razor thin, it has succeeded mainly because it relies so heavily on sheer volume (and, to a lessening degree, on unpaid writers).
Arianna Huffington and Armstrong have publicly differed in their opinions on erecting paywalls. Armstrong hasn't been very specific, but it seems highly unlikely that content such as that produced by Patch, its local news division, will be put behind a paywall. It's even more unlikely that Huffington Post content will be so treated. The most obvious candidates are the specialty business-to-business sites AOL is creating, like AOL Energy and AOL Defense.
Jeff Bercovici, Forbes' Mixed Media blogger, thinks that HuffPo's reputation for left-wing shrillness could undercut AOL's specialty initiatives were the company to erect a paywall. Business-to-business publishing, "where the companies you're writing about are also your major advertisers and your readers' employers, is very different from the stridency and certitude that draws readers to HuffPo," he writes.
"Are defense contractors really going to pay hundreds or thousands of dollars a year to subscribe to a publication overseen by a person who says the current defense budget reflects 'the most perverted of priorities' and calls for it to be dramatically slashed?"
It seems unlikely, though, that many people, including those involved in the industries AOL's sites cover, will confuse the company's trade-oriented sites with the HuffPo. Whether AOL can charge money for any of its content will come down to quality. Given its history, that will be AOL's biggest challenge.
In the meantime, despite Armstrong's entreaties to Wall Street, don't expect investors to go flocking to AOL, bubble or no bubble.
Dan Mitchell has written for Fortune, The New York Times, Slate, Wired, National Public Radio, The Chicago Tribune, and many others.Follow us on Twitter at @TheSnitchSF and @SFWeekly.