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AOL Preps Big Changes to Patch Amidst Sound Q2 Results

AOL Still Projects $40 million to $50 million Revenue for Patch This Year

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In the turnaround world of AOL, smaller revenue declines are still viewed as wins. By next year, Wall Street likely won't let the company enjoy that luxury.

Revenue in the second quarter shrank 2% year-over-year, from $542 million to $531 million in what AOL said was the "lowest rate of decline in seven years." Global advertising revenue came in at $338 million, a 6% increase from the $319 revenue it registered in the same quarter last year.

Overall display advertising rose 2% to $140 million from $138 million, but U.S. display revenue was flat at $127 million. AOL's ad-network business continued a trend of successful results with $111 million in revenue, up 19% from $94 million in the same quarter last year. The overall U.S. online display market is expected to grow 24% in 2012, according to eMarketer.

But perhaps the most interesting news was AOL CEO Tim Armstrong's comments about upcoming changes to its hyper-local news network Patch. Ad Age has heard in recent months that the much-maligned news network was being rebuilt, with its original code base totally scratched. On today's earnings call, Mr. Armstrong alluded to this, saying that while the first generation of Patch relied on journalists creating news about a town, the next iteration will also push more into listings and commerce.

In an interview after the earnings call, Mr. Armstrong expanded on these thoughts, saying that the new Patch, to be unveiled later this year, "is really about unlocking the vitality in towns...groups, commerce, and the social aspects of towns for a much deeper, richer engagement level."

He was told that what he was describing sounded a little bit like a social network. "You could call it community networking," he responded. As for the listings business, he was asked if Patch was trying to build a competitor to Craigslist. "Craigslist and other companies like that that sell used merchandise haven't really scaled into communities," he said. "They've been very metro-focused. One of the opportunities for Patch...is the ability for us on the commerce side to offer the people the ability to do listings and other things like that locally."

AOL is still projecting $40 million to $50 million revenue for Patch this year, the company said on its earnings call. Mr. Armstrong also noted that Patch recently signed one of its largest deals ever with a national advertiser. Still, about 90% of Patch's ad revenue comes from local ad deals, Mr. Armstrong said in the post-earnings interview.

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