AOL turned in mixed earnings on Wednesday, with higher revenue but profit that missed estimates, and shares dropped 23% in afternoon trading. CEO Tim Armstrong said he was pleased with the company's performance, pointing to five quarters in a row of revenue, profit and traffic growth. That's coming from a fairly low baseline the company hit a few years ago.
Mr. Armstrong spoke with Ad Age after this morning's earnings call, touching upon the company's narrowing investment in its content brands, the impending profitability of its ad-tech division and an update on its NewFronts performance:
Advertising Age: Has AOL sold any more original digital shows after your NewFronts event last week?
Tim Armstrong: Yes we have but I don't think we're releasing that yet.
Ad Age: Video and ad-tech are bundled into "AOL Platforms." When will that side of your business be profitable?
Mr. Armstrong: On the earnings call today we basically said AOL Platforms will be a billion dollar business this year and be profitable this year. We were transparent with Wall Street on that during our earnings call. 2014 will be the year that the business turns to profitability.
Ad Age: Are your acquisitions of companies like Convertro ($101 million) and Gravity ($50 million) part of what's keeping that side of the business in the red?
Mr. Armstrong: We have been putting in organic and inorganic investments in that business. We invested in hiring a number of people and built AOP and Marketplace on the programmatic side. And we've acquired Adap.tv, Gravity and now Convertro. We've been in investment gear mode. Overall revenue is growing and we believe profitability will be in sight for this year.
Ad Age: Do you even get nervous about the amount of revenue that's being contributed by the membership side of AOL? It was down 7% percent this quarter. What's AOL planning to do when that continues to shrink?
Mr. Armstrong: The main areas of focus for us are video, programmatic ads and the build out of our content properties, of which AOL service is one of them. We believe AOL is a very valuable brand, has very valuable consumers and will be around for a really long period of time.
$43.6B U.S. agency revenue
Ad Age: What about the brand side? Some brands are being de-emphasized. Are there are any you can name outside of Patch?
Mr. Armstrong: Our strategy has been to invest in brands that have global capability and global expansion capability. Huffington Post went to South Korea and Brazil in Q1. TechCrunch has gone to Russia and China. Makers, we just announced a partnership in China. And we expanded Engadget into the UK. The Huffington Post, 40% of its traffic is international. Our investments have been around the globalization and platform-ability of these brands.
Separately, there are smaller properties which we have been not investing in as heavily and moving those investments towards unified strategies. We'll take something like a Cambio, for instance. That property, which is really focused on teens, is a property we still have but the investment level is not going to be a global investment level. We have been trying to feed the global brands and retool or fold the non-global brands into larger brands.
Ad Age: Why even hang on to the smaller properties?
Mr. Armstrong: When I got here there were about 300 brands and then we went down to about 80 and then down to about 30. Now we're getting down to sort of the 15 level. There's been a consistent march down to fewer, bigger brands and that march continues.
Ad Age: So you're solidifying around a handful of premium brands and digging in?
Mr. Armstrong: Yes. The power brands.
Ad Age: What about Patch? Is [Patch partner] Hale Global keeping its promises?
Mr. Armstrong: Yes, I just met with them last week and I've been in touch with them on a regular basis. They've done a really good job restructuring Patch and I think Hale Global will have more announcements coming out. They've done a good job of moving Patch to a much better place, which we expected. And they've done exactly what they've said they would do.