AOL Sees Growth in Online Display Ads

A Big Bet on Branding Through Graphical Display Ads

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AOL found something that has eluded many of its peers of late: growth in their online display ad business.

Tim Armstrong
Tim Armstrong Credit: Bloomberg

AOL managed to turn in a not-so-bad fourth quarter, with display ad revenue -- the present and future of its business -- up to $363.8 million, up 10% from $331.6 million a year ago.

After several years of display ad declines, AOL is facing some easier comparisons, but growth in the fourth quarter is notable considering Yahoo's display ad revenue was down 3% in the same quarter.

For AOL, it's about convincing brands that big, graphical display ads are core to delivering a brand message, not just eliciting the cheapest possible click-through.

"If you talk to advertisers now they are starting to realize there is a backlash against 'how many friends do I have' or 'how many coupons do I have out there' to getting a consumer to understand my brand proposition," said CEO Tim Armstrong, in an interview.

Overall revenue was down 3% to $576.8 million from $596.0 million a year ago, reflecting the continual decline of AOL's legacy online access business. Net income was also down 66% from last year, but both figures beat Wall Street estimates.

In an interview, Mr. Armstrong said the hope is to return all of AOL to profitability by the end of 2012, a difficult task given the decline of the online access business, but doable. Patch, AOL's network of local news sites, is also expected to grow revenue, but profitability is "unlikely" in 2012.

AOL is participating on an online ad-selling joint venture with Microsoft and Yahoo, which should be underway this spring. "We got involved in the consortium because we think there is an opportunity to drive better results in non-reserved inventory," Mr. Armstrong said.

Mr. Armstrong is lobbying the consortium to include its so-called "Devil Ad" format, very large, interactive units for brand advertising, as part of the offering, but it's unclear whether it will do so. Any additional revenue from the partnership will come in the second half of 2012.

Overall traffic to AOL properties was down 4% in the quarter, a decline Mr. Armstrong attributed to its AIM instant messaging service and Mapquest, two things he said he is working to fix, "as we speak."

After several years of buying brands like The Huffington Post and TechCrunch, as well as technologies like Pictela and 5min, Mr. Armstrong says the company is focused on buying its own stock. Shares are up nearly 15% today in morning trading.

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