There's (a little) good news and there's (a lot of) bad news in AOL's third quarter earnings report out Tuesday, leaving some to wonder if Tim Armstrong's big turnaround is still stalled.
Let's start with the good news. AOL didn't do as badly as Wall Street predicted they would, and although there are some devilish details, the company's advertising is on the up-and-up. Jeff Bercovici at Forbes says, "AOL is on a bit of a roll." Tim Armstrong is quoted in the earnings release has bragging, "AOL grew global advertising by 8 percent, driven by 28 percent and 15 percent growth in third party network and global display advertising revenue, respectively, substantially closing the gap to revenue and eventual profit growth."
Now, on to the bad news. While a Thomson Reuters survey pegged analysts predictions at $524 million, AOL reported only $532 million in revenue and a $2.6 million loss. Compared to 2010's third quarter, display advertising did see a 15 percent boost, although a matching 15 percent decline in search and contextual advertising and a 22 percent drop in subscription revenue helped contribute to a bad bottom line. In a statement, Armstrong touted an 8 percent overall growth in advertising pointing to areas of strength like their third party network and global display advertising, but as Peter Kafka points out, the growth didn't really come from AOL improving the ailing areas of their businesses:
Investors might raise an eyebrow over the fact that domestic display growth of 14 percent is a sequential decline from last quarter's 16 percent rise, though. And bear in mind that these numbers include both TechCrunch and Huffington Post boosts. Also worrisome — a mere 1 percent increase in the company's owned and operated properties — again, that's after accounting for those two big acquisitions.
The acquisitions of HuffPost and TechCrunch match Armstrong's big vision to make AOL into a premium content company. That's why he brought on Arianna Huffington to run all things editorial when AOL acquired the Huffington Post this January for $315 million. (That purchase scooped up 40 percent of AOL's war chest, by the way, and they now have only $444.1 million in cash minus the $250 stock buy-back program.) Eventually, this investment in journalism and good quality video should boost AOL's overall traffic and helped deliver the ad dollars needed to ween the company off the teat of its doomed subscription business. So far, that's not happened. Back to Kafka:
Even though it has added TechCrunch and the Huffington Post over the last year, traffic to AOL's own sites has barely budged: A year ago, AOL attracted 106 million monthly unique visitors to its sites; this year, the total only moved up to 107 million.
Armstrong is known for being good rallying the troops, and Bercovici could be right about AOL starting to roll forward. David Kaplan at paidContent remarked that Armstrong sounded "triumphant" on the Q3 earnings call on Tuesday morning. "Benefits are coming into view," Armstrong said. Wall Street must've heard his roar. AOL stock was up around 6 percent when the market opened a few minutes after the end of the call.
This article is from the archive of our partner The Wire.
We want to hear what you think about this article. Submit a letter to the editor or write to email@example.com.