AOL Finally Increases Ad Revenues as Turnaround Takes Hold

Stock Drops Like a Stone Due to Missed Earning-per-Share Numbers

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AOL turned in its first quarter of ad-revenue growth in two years, and investors rewarded the good news by selling off AOL shares, down more than 15% in morning trading.

Tim Armstrong
Tim Armstrong Credit: Bloomberg

Despite signs of an ad turnaround, or at least positive growth from last year, AOL missed earnings-per-share estimates by a wide margin, reporting a loss of 11 cents a share compared to an average analyst estimate of 4 cents, and that contributed to the stock hit. AOL beat Wall Street 's consensus revenue estimate, driven by increasing display ad sales, its key revenue driver going forward.

The New York-based company booked $319 million in ad dollars for the most recent quarter, a 4.7% gain over the same period last year, while total sales dropped 8.4% to $542.2 million. Its access business slid 22 .6% to $201.3 million.

CEO Tim Armstrong's bid to transform AOL from an aging internet-access business into a media powerhouse appears to be taking shape, with a few trouble spots still looming. For the first time since the company was spun off from parent behemoth Time Warner in 2009, AOL increased its advertising revenue and stemmed its overall loss.

"We continue to make progress on the comeback," Mr. Armstrong said in an interview with Ad Age . "We wanted the fastest growth possible as we can get. We're doing a much better job on the ad and product sides."

AOL's ad business was driven largely by, its third-party network, as well as its video network through its acquisitions of Goviral and 5 Minutes, accounting for a 29.3% increase to $93.6 million. AOL's premium ad units also drove the bottom line with domestic display-ad revenue notching a 16% gain to $126.8 million, driven partly by its Huffington Post and Tech Crunch properties.

Despite the initial success of its premium ad strategy, the company let go of its sales chief, Jeff Levick, and placed manager Ned Brody in charge of all sales operations for the company.

Search revenue, which is typically driven by AOL's access subscribers, dropped 21.1% to $87.8 million. AOL's access subscribers have generally clicked through on search results on its home page generally at a higher rate than on Google, despite the fact that the search titan is the engine behind AOL's search box. Chief Financial Officer Arthur Minson pointed out that despite its year-over-year drop in revenue, it's actually a profitable business and accounts for 37.1% of AOL's total sales.

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