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Tim Armstrong: AOL Plans to Invest in TechCrunch and Engadget, Not Sell Them

Domestic Display Advertising Falls as Activist Investor Seeks Shakeup

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AOL reported a 4% drop in average monthly visitors to AOL owned-and-operated properties when it reported first-quarter earnings Wednesday. Those entities include TechCrunch and Engadget, but CEO Tim Armstrong said the properties aren't for sale, refuting a report in the tech blog PandoDaily that AOL was seeking buyers for the sites.

"We are planning to invest in those properties, not sell" them, Mr. Armstrong said in an interview with Ad Age . He admitted that the company has spoken with outside entities about partnerships that would lead to increased investments in TechCrunch and Engadget, but that right now AOL is leaning toward "investing ourselves."

Tim Armstrong
Tim Armstrong Credit: Bloomberg

AOL managed to beat Wall Street expectations but didn't do much to prove that it can grow its ad-supported media properties, the core of its business, as it sheds its legacy internet-access business.

While AOL's global advertising revenue grew 5%, to $330 million, its key domestic ad-display business fell to $119 million from $120 million year-over-year. In a conference call with analysts, Chief Financial Officer Artie Minson said the decline could be traced to a decrease in reserved ad impressions, citing an example of one advertiser who "suspended [all] digital ad spending" in the quarter.

Total revenue dropped 4% from a year earlier, to $529 million.

"I was not happy with domestic display," CEO Tim Armstrong said on the call. He cited a sales strategy "that was probably off tune a little bit," adding that it has been adjusted to be "much more KPI-focused." In a separate call with Ad Age , Mr. Armstrong said sales staff is working on giving advertisers better analytics and data to measure against their own internal goals.

Mr. Armstrong also acknowledged the effect that activist investor Starboard Value is having on the business. AOL's largest single shareholder, the hedge fund is pushing to add its own candidates to the board. "Major customers don't put major investments in when they think things are unstable," Mr. Armstrong said.

Mr. Armstrong also told Ad Age that meetings with advertisers and agencies usually begin with questions about the company's stability, as well as with compliments on progress AOL has made. He said some executives have said they want to "sit on the sideline," rather than invest millions of dollars in sponsoring new programs unveiled at the NewFronts, until the company comes to some type of agreement with its activist investor.

"It's the reality we're dealing with," Mr. Armstrong said, adding it's as if AOL is going into these conversations "with one hand tied behind our back."

In a move that seemed to be aimed at appeasing Starboard and other shareholders, Mr. Armstrong said that AOL will give all proceeds from its $1 billion patent sale and licensing deal to shareholders. Mr. Armstrong had previously said only that "a significant amount" of proceeds would go to shareholders.

A major bright spot was AOL's third-party ad-network business, which grew 23% year-over-year. That includes video businesses Goviral and 5min, as well as the traditional Ad.com network. Mr. Minson said the video-network businesses have "higher margin characteristics" than the traditional display-ad network business.

Mr. Armstrong said that the maligned Patch business should reach "run-rate profitability" by the end of 2013 and that he expects the network of local-news sites to book revenue of $40 million to $50 million this year.

The company said that it expects to start breaking out more business segments in its earnings reports by year's end.

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