AOL stock is down almost 30%.
Its market cap is just $1.14 billion.
How low can it go?
Let's assume what's going on here is that investors do not believe in AOL CEO Tim Armstrong's "media company" turnaround plan – that all they value is AOL's subscription business.
Earthlink, an Internet access company that has turned itself into an annuity, is a decent proxy for what AOL's subscription business could look like all on its own.
Earthlink's marketcap is .88X revenue.
Annualized, AOL's subscription revenues are about $800 million. Apply the Earthlink multiple, and AOL's subscription business contributes $700 million of market cap.
Note that this number doesn't figure in AOL's media business, at all. With help from a fairly sizeable brand – The Huffington Post – AOL's display ad revenues reached $127 million this quarter – $500 million or so annualized. We think that business is growing fast enough to justify a 2X multiple. But let's be conservative and give it a 1X.
Here's the final math: $500 million + $700 million = $1.2 billion.
So how much lower can AOL go? Not much before it starts to get outrageously cheap.
CORRECTION: An earlier update to this post said AOL finished down just 12% on the day, after reaching 30%. We reported that because its what Google Finance said. Google Finance was wrong.
