AOL just posted earnings, and it looks like a decent quarter for Tim Armstrong and his team.
Sure, overall revenue is down 8% on a year over year basis, but $542 million in sales was better than expected.
But, most importantly, the display ad business was up 14%, which is what Armstrong had been promising would eventually happen. If AOL is ever going to get itself righted, this is where it must succeed. The core display ad business will have to support the digital media company.
The growth in display is that it was driven by the additions of Huffington Post and TechCrunch, according to AOL. Those were expensive acquisitions, and it’s not like AOL can keep buying growth. It will now have to continue to grow its media properties.
Update 2: Evercore Partners analyst Ken Senna was not impressed by the results. Here’s his takeaways:
- Bottom-Line Miss. Higher traffic acquisition cost from stronger-than-expected third party revenue (~$70mm), Patch investment ($15mm), and acquisition-related earnouts (~$10mm) resulted in operating expenses (x-SBE) of 96% of revenues vs. 94% expected. As a result, OIBDA of $77 million (or 14% of revs) was 3% below our $80 million expectation (street: $82 million). Adjusted EPS of $0.04 missed our $0. 16 forecast ($0.11 for the Street).
- Display revenues were lighter than expected , as branded display revenues increased just 14% to $137 million, 9 percentage points below our 25% growth expectation. Acquisitions (HuffPo and TechCrunch), pricing improvement, and Patch (~$2mm) were cited as display growth drivers in release. Nevertheless, engagement still appears to be an issue with unique visitors to the site increasing just 1% y/y despite recent acquisitions and platform investments.
- Domestic Display also shy at $127 million, or 16% y/y growth (18% if we adjust to exclude the 2010 sale of Digital Marketing Services), compared to our 20% y/y growth expectation.
- Non-Display revenue growth exceeded. Total revenues declined by 8% to $542 million, 3% better than our $526 million estimate, on stronger than expected non-Display revenues. Non-display revenues (including Search, Third Party, and Access Subscription) decreased 14% to $404 million compared to our 20% expected decline.
- Non-display revenues led by Third Party Ad Network. Third Party revenues of $94 million, representing 29% y/y growth (~50% of which was due to 5Min and GoViral acquisitions) well exceeded our 3% growth expectation, with the ~15% organic improvement due to better recirculation of ads to existing traffic.
- Access Subscription and Search revenues were modestly better than expected at -23% and -21%, respectively, to $201 mm and $88 mm, compared with our -25% and -23% estimates. The better than anticipated Access performance was due to slightly slower subscriber declines (21% vs. 22% estimated) and better than expected ARPU declines (3% vs. 4%).