Is AOL Cursed?

After a 58% profit drop, bloggers are starting to wonder

Sobering news for AOL today. The Internet company's revenues and profit plunged with net income dropping to $34.7 million from $82.7 million. AOL's transition to an advertising-supported business model has been closely watched by media and technology observers alike. Whether deserved or not, the company continues to be dogged by bad press for its star-crossed merger with Time Warner. Following today's reports, bloggers are pondering the curse of AOL.

• There's Definitely a Curse, writes Ryan Tate at Gawker: "To cut a deal with the internet conglomerate is to invite epic disaster... It sold instant-messaging service ICQ to the frighteningly backed Russian firm Digital Sky Technologies for $187 million, well under the purchase price... Then, of course, there was AOL's epically bad $180 billion merger with Time Warner... One wonders what sort of acquisition premium Armstrong will have to pay the next time he wants to do a deal, to overcome worries about the Curse of AOL."

• They've Got to Turn This Ship Around, writes Henry Blodget at Business Insider: "Despite huge cost cuts, AOL's Free Cash Flow tanked year over year--dropping a sickening 55% ($153 million).  This compares a revenue drop of only 23%. Why did Free Cash Flow drop so much? In part because much of the revenue that AOL is losing is wildly profitable, while the revenue it's keeping is low margin. Specifically, the high margin revenue AOL is losing is subscription revenue, which declined 28% ($90 million) year over year, and the search revenue, which fell 27%, or $45 million. Now, everyone knows AOL's subscription revenue is collapsing.  But what fewer people understand is that the subscription revenue and search revenue are tightly linked, and they are both vastly more profitable than AOL's media and ad network business."

• Give the CEO a Break, writes Peter Kafka at All Things Digital: "[Tim] Armstrong has had the job for a year, and didn’t start his overhaul in earnest until last summer. So he still has a grace period before investors expect to see results."

• AOL's Path Forward  Tim Conneally at Beta News lays out the company's strategy: "AOL is still in a period of recovery from its spin-off from Time Warner Inc. and is attempting to streamline its business into one driven almost entirely by advertising... This split will shrink AOL's workforce by 33%."

• Here's What They Should Do, advises Nicholas Carlson at Business Insider: "The company needs to find a growth engine, fast." He recommends nine Internet companies that AOL should purchase. Among them is the Curbed network, a "place to go for real estate." Carlson says "With its local content, Curbed could also help AOL crack the local ad market it's going after with its local blogs."