In Praise of Old Web

 | Feb 02, 2012 | 11:30 AM EST  | Comments
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Stock quotes in this article:

aol

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iaci

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yhoo

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aapl

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amzn

On Wednesday, while the world waited for the Facebook IPO filing, two old Web companies -- AOL (AOL) and InterActiveCorp (IACI) -- announced good earnings. AOL's shares rocketed 18% at one point on Wednesday before settling lower. IAC's jumped over 8%.

Even the old purple dinosaur Yahoo! (YHOO) caught a bid, rising 2%, perhaps in sympathy.

It's currently fashionable to blast these old stocks. To wit:

  • Someone observed after Yahoo! released its results a couple of weeks ago that Apple's (AAPL) iTunes alone does 150% of all of Yahoo!'s annual revenues.
  • @rakeshlobster tweeted: "In one day, Apple generates 89% of the revenue AOL generates in one quarter."
  • @LaMonicaBuzz tweeted: "Always forget Diller when thinking of big Internet firms. That might be a mistake. Someone just noticed IACI up 10% on earnings."

In investing, we are always ready to throw out the old and get overly excited about the new. But that tendency can lead to what happened on Wednesday with AOL and IACI. These guys both exceeded low expectations. In the case of AOL, the company is still losing money; it just didn't lose as much as everyone thought it would. This surprise led to massive buying and short-covering.

Also interesting about yesterday's move in AOL is that it almost trades like a small-cap. There was no immediate reaction to the good earnings. If you'd bought the stock in the first 20 minutes of trading yesterday, you could have ridden the steep rise in the stock to its highs of the day.

This isn't like trading Apple or Amazon (AMZN), where the earnings are immediately digested into the stock price during the earnings calls. You still have plenty of time to react to AOL, IACI, or Yahoo!

Of course, that lack of interest cuts both ways. Yahoo! has languished on the vine for months, despite the seemingly good news of a new board coming soon and a desire by all parties to negotiate a cash-rich split to create value for all parties. AOL has been trading at less than its cash and certainly less than what a sum-of-the-parts reckoning suggests it's worth.

But if you're patient, these old codgers might continue returning some great returns for the rest of this year, with less risk of downside.

Facebook, on the other hand, will have to live in the glaring spotlight for the next seven years at least. Every slightly positive bit of news will be eaten up by the market and rewarded in the stock price. Every worrisome piece of news will likely spook the market. So be careful. The highs will be a lot higher than the old Web stocks, but the lows might be a lot lower.

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