This past May, AOL (NYSE:AOL) was acquired by Verizon (NYSE:VZ) for $50 per share, or about $4.4 billion total. Both companies claim AOL’s strength lies in digital content and online advertising. AOL will now get a chance to show off its strengths because on June 29, AOL Inc. announced a new partnership with Microsoft Corporation (NYSE:MSFT).
In the terms of the deal, AOL will be responsible for the management and sales for all of Microsoft’s display, mobile and video advertising inventory in the United States, the United Kingdom, Canada, Brazil, France, Germany, Italy, Spain, and Japan. Microsoft’s search engine, Bing, will also replace Google on AOL’s platform for the next 10 years. In turn, AOL will gain a lot more ad inventory to work with within the digital ad industry.
Rik van der Kooi, corporate vice president of Microsoft’s ad business, said of the partnership, “We believe in the advertising model, and we care deeply about those services that are monetized through ads. But if you look at trends in the industry, it makes complete sense for us to line up with AOL.” As Microsoft separates itself from its ad business, the company will focus on three prime areas: cloud platforms, personal computing, and business productivity. Additionally, the company will compete more directly with Google in an effort to increase growth.
Citigroup analyst Walter Pritchard weighed in on Microsoft on June 26 after Satya Nadella, the company’s CEO, released an all-employee memo describing his strategy for fiscal 2016. Although the new partnership between AOL and Microsoft paints Microsoft in a positive light, Pritchard is not convinced. The analyst reiterated a Sell rating on the stock with a $37 price target, citing that Microsoft CEO Satya Nadella has done little to convince him of “any sort of significant change in direction.”
Walter Pritchard has an overall success rate of 72% recommending stocks and a +14.0% average return per recommendation. He has rated Microsoft a total of 32 times, earning a 76% success rate recommending the stock and a +12.5% average return per recommendation.
Out of 23 analysts polled by TipRanks, 13 analysts are bullish on Microsoft, 4 analysts are bearish, and 6 analysts are neutral. The average 12-month price target for Microsoft is $47.89, marking a potential upside of 8.47% from where the stock is currently trading. On average, the all-analyst consensus for Microsoft is Hold.