AOL CEO Tim Armstrong Still Has Career-Threatening Problems To Deal With

Tim Armstrong thinks

Photo: MattHurst

AOL management won a fight for its life yesterday.  At the company’s annual meeting in boston, shareholders rejected a proxy challenge from a fund called Starboard and voted to re-elect AOL’s board of directors.But here’s the thing: if it weren’t for the savvy way Armstrong sold some of AOL’s patents to Microsoft for $1 billion – and then promised to give that cash to shareholders through some sort of dividend – we’d probably be talking about a new CEO today.

In the end, shareholders rewarded Armstrong not because he’s done great work strategically deploying AOL’s resources over the past three years, but because in the past few months, he has suddenly started giving AOL’s resources directly to AOL shareholders.

This trick may even work again in the short to medium term. AOL has plenty of asset to sell – starting with AIM and Mapquest. Armstrong could use those proceeds to give more cash to shareholders.

But in the long term, Armstrong and AOL are going to have to figure out a way to invest resources into new businesses that can save the company.

There are few signs that is happening.

AOL’s core businesses, access and search, are still eroding, and despite big investments, the business that’s supposed to be the future, display advertising, remains unprofitable.

Armstrong has a lot of work ahead of him.

AOL's core businesses, search and subscriptions, are quickly eroding

Meanwhile, AOL's display advertising is losing more money than ever

That's because revenues are basically flat, while expenses increase

Similar businesses have done much better over the past three years

AOL has tried to fix the problem through acquisition, but its enterprise value has only shrunk in the process

AOL's biggest acquisition, Huffington Post, has bloated and lost profitability since it was integrated

AOL's other big investment, Patch, keeps losing money

That's because even though it's a local play, local advertisers don't buy ads on Patch

Worse, only 30% of Patch advertisers come back for more.

So what's the solution?

AOL needs to…

  • Slim down Huffington Post back to fighting shape
  • End the Patch experiment.
  • Sell AIM, Ad.com, and Mapquest

These charts were drawn from one presentation.

Starboard may have lost its AOL proxy fight, but it sure made some compelling arguments here…

Here's The Point-By-Point Takedown Of AOL Management Everyone Is Talking About

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