AOL Beats Low Expectations Despite Huge Ad Declines

tim armstrong aol

Photo: AP

AOL’s earnings for Q4 2010 beat Wall Street’s extremely low estimates, but across the board the company’s core businesses continued to shrink at double digit levels.The good news is that AOL is still generating ~$300 million in cash annually, which buys it time to turn itself around.

Total revenue came in at $596 million, blowing away expectations, but it was down 26% on a year over year basis.

Ad revenue was $332 million for the quarter, which is about what analysts were looking for, but it’s down 29% on a year over year basis.

The display ad business generated $151 million in revenue, which is better than expected, but it’s down 14% on a year over year basis. Of that, $140 million was US display, which is an 8% drop year over year. (On the plus side, it’s up for the third straight quarter.)

In the release AOL explained the big drop in ad dollars, saying it was largely “AOL-implemented initiatives and comprises,” like losing third party ad network revenues in Europe, and moving away from low margin ad products. AOL is willing to suffer near term pain for long term gain.

AOL also reports it cost $31.4 million to acquire and Pictela, and it has $11.5 million set aside for the next three years as an earnout for those companies.

Key Statistics Reported versus [Analyst estimates]

Revenue: $596 million versus [$587.44 million consensus]

Operating EPS: $0.70 versus [$0.51, UBS est.]

Display ad sales: $151 million versus [$147 million, Barclays est.]

Total ad revenue: $331 million versus [$333 million, Barclays est.]

Subscription revenue: $236 million versus [$231 million, Barclays est.]

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