NEW YORK (CNN/Money) -
"AOL: You've got Jail!" That was one of the jokes making the rounds Thursday as investors learned that the SEC would investigate potential accounting irregularities at AOL Time Warner's America Online division, as detailed last week in a series of Washington Post articles.
The news pushed AOL stock into the single-digit club, dropping more than 15 percent to $9.64. AOL is the parent of CNN/Money.
AOL, for its part, says that the allegations in the Washington Post article are without merit and that all the transactions in question were reviewed by outside auditors Ernst & Young. Still, this denial, and whatever bits of good news there were in AOL's earnings report Wednesday night were overshadowed by what analysts were gingerly calling the "overhang" of an SEC investigation (see "You've got fear").
While acknowledging that the stock now sports a "depressed valuation," Goldman Sachs analyst Richard Greenfield suggested the stock would tread water until "AOL division issues" were resolved. Others were a little blunter. "That's AOL Folks!" the New York Post blared, adapting the catchphrase of one Porky Pig (who, like me, is an AOL Time Warner employee).
Meanwhile, online critics hit the caps-lock key and began typing away. "AOL GOING TO PENNIES" one critic on the Yahoo! finance boards predicted just before news broke of the SEC investigation. "SHORT THE SUCKA CAUSE IT'S A PUKE-DIARRHEA-BARFER STOCK WITH DEAD MAGGOTS!" (His opinion didn't change much after the news: "BWAHAHAHAAAAA!!! WHATTA DIARRHEA-PUKE-BARFER-FART..BARF!")
That may be, ah, overstating the case, but AOL Time Warner faces challenges that go well beyond SEC snoops -- most notably trying to revive sagging AOL signups and resuscitate the struggling online ad market. (For more on AOL's ad issues, see "You've Got Ail!")
Still, buried in all of the bad news is one reassuring data point -- and his name is Scooby Doo. Yes, the cartoon dog's new movie, which cost a little over $50 million to make, has already taken in more than $200 million worldwide.
Then again, Scooby's success will no doubt inspire a slew of sequels and knockoffs. We'll be awash in computer-animated dogs for years to come. That may be good for AOL's stock, but it can't be good for our nation's soul.
Hold the Cisco
Longtime Cisco bear Ariane Mahler of Dresdner Kleinwort Wasserstein chose Thursday of all days to actually upgrade the stock -- all the way to a "hold."
Skittish investors evidently didn't take much comfort in knowing that Mahler's gone from cold to lukewarm on the stock: The stock dropped nearly 12 percent, slipping ever closer to its September lows. Mahler, who until today had been the only analyst rating the stock a "sell," said she thought the stock had fallen about as far as it was likely to fall, though worries about Cisco's big options overhang and accounting issues in general could possibly push it down further.
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Her price target? A whopping $13 a share, a little less than a buck and a half more than what the stock's Thursday close. (For those keeping track, Mahler gave the stock a similar upgrade back in April, only to downgrade again -- presciently, it turns out -- after the stock popped above her target price.)
Meanwhile, Credit Suisse First Boston analyst Lissa Bogaty cut her target price on the stock from $20 to (ouch!) $14; even though her target is now only a buck higher than Mahler's she still rates the stock a "buy."
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