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.
