After several years of weakness, AOL is facing some easy
comparisons, but the fact that it has arrested decline and is now
growing its ad business was welcome news to Wall Street , which
sent shares 11% higher in morning trading. "We're heading toward an
inflection point of revenue growth, which will then be followed by
profit growth," said CEO Tim Armstrong.
The caveat to all this is that AOL's owned-and-operated
properties, which AOL sells for premium ad rates to brands, aren't
growing much. Unique visitors to the AOL homepage and brands like
TechCrunch and Huffington Post, and its 35 million monthly users,
grew just 1%, even though both were acquired in the past year.
Mr. Armstrong said that the additions of new sites were offset
by declines in traffic to properties such as Mapquest and AIM, as
well as the consolidation of AOL brands as a result of the
Huffington Post acquisition. U.S. display ad revenue grew 14% over
the same period last year, including the new acquisitions. Without
them, Mr. Armstrong said display growth was "single digits, apples
to apples, year over year."
Global display advertising grew 15% year-over-year. Third-party
network revenue grew 28%, with Ad.com seeing 12% growth. Mr.
Armstrong declined to say whether the company was still in talks
with Yahoo and Microsoft to pool and sell each other's remnant
inventory in a separate exchange.
Revenue from search and contextual advertising fell to $85
million, a 15% year-over-year drop. The company attributed most of
the drop to a decline in domestic search queries as a result of the
steady decline of domestic AOL access subscribers.
Still, AOL's status in the display world remains uncertain, with
the growing influence of competitors Facebook and Google. By the
end of 2011, the company is expected to only own 4.2% display
market share in the U.S., according to eMarketer. In
2007, AOL held 10.6% share, eMarketer said.
Mr. Armstrong continued to emphasize the company's bet on
premium ad formats such as Project Devil ads, future investments in
video and mobile, and the growth of the local-news network Patch.
He said the number of Devil ad advertisers and campaigns from these
advertisers grew more than 50% quarter over quarter.
The company said the Patch network currently includes 862 sites.
More than 90% of Patch's revenue has come from what Mr. Armstrong
called "local, local" advertisers. He said the company expects to
see growth in Patch revenue among regional and national advertisers
in the coming quarters.
Future advertising gains are critical to AOL's future, as its
dial-up business continues to erode. Subscription revenue continued
to plummet in the third quarter, down 22 % to $192 million, and AOL
access subscriber numbers declined 15%, which would have been 20%
if not for a change in the pricing structure of access products,
CFO Artie Minson said.
Mr. Armstrong said that in visiting about 50 advertisers in the
last two months, he is confident that there does not seem to be the
same pullback among advertisers as in the fourth quarters of 2008
"In digital," he said, "there's a high level of interest and a
high level of planning going on."