AOL's Huffington Post purchase: Worth nearly half of the cash balance?

AOL's Huffington Post purchase: Worth nearly half of the cash balance?

Summary: AOL on Monday paid $315 million---$300 million in cash---for the Huffington Post and while most are focusing on the content and editorial plans, observers may want to look at the balance sheet and future flexibility.

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AOL on Monday paid $315 million---$300 million in cash---for the Huffington Post and while most are focusing on the content and editorial plans, observers may want to look at the balance sheet and future flexibility.

Simply put, AOL drained nearly half of its cash balance for Arianna Huffington and the gang. Nice deal for Huffington, but you have to wonder if AOL spent too much.

Here's a quick look at the numbers.

The cost:

  • $801.8 million: AOL's cash and equivalents balance as of Dec. 31.
  • $300 million: Cash handed over for the Huffington Post.
  • $501.8 million: New cash balance.
  • $107 million: Cash flow in the fourth quarter
  • 3 quarters: Approximate amount of cash flow AOL is paying for Huffington Post (if you assume AOL's prospects stay on par with the fourth quarter).

The payoff:

  • More unique users. (AOL and HuffPo has 117 million uniques in the U.S. and AOL Media reported 84 million U.S. uniques last week).
  • Someone to run the content strategy. Huffington will now oversee AOL's content operations.
  • More than $50 million in additional revenue in 2011.
  • Cost savings of about $20 million a year.

Was it worth it to AOL? If AOL used stock and cash perhaps. Draining the war chest on one bet, however, may be too risky given AOL's financial profile and evolution. Hudson Square Research analyst Rory Maher generally likes the deal with a few caveats. Maher notes that Huffington Post is a property that fits well with AOL and cross promotion can drive traffic and ad revenue. The problems is AOL drained too much cash on Huffington Post. Maher writes:

"We believe there is material risk associated with spending nearly half of the company’s cash balance on one transaction."

If HuffPo gives AOL the content juice it needs to complete its transformation and become a cash cow the deal was worth it. If not, $300 million in cold hard cash could sting.

Topics: Enterprise Software, Banking

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4 comments
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  • RE: AOL's Huffington Post purchase: Worth nearly half of the cash balance?

    My personal opinion is NO. As a long time user of AOL as my first email account, I see this as a negative. Huffington Post is despised by the right populous and that group may very well dump AOL and it's browser for another. I will end my long relationship with AOL immediately. D Howton
    dhowton
  • RE: AOL's Huffington Post purchase: Worth nearly half of the cash balance?

    AOL must love wasting money. First it was the crap load of CDs, then they bought TechCrunch, now Huffington Post.
    Loverock Davidson
  • RE: AOL's Huffington Post purchase: Worth nearly half of the cash balance?

    HuffingtonPost's US Alexa rank is 31st and 29 of the 30 sites ahead of it would all cost much more (I'm not sure what About.com is worth). The only pure news sites ahead of it are MSN, CNN and New York Times. Plus they got a nice bonus in Arianna besides. Maybe it is a bargain.
    Mythos7
  • RE: AOL's Huffington Post purchase: Worth nearly half of the cash balance?

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