Yesterday was a historic day for one of America’s most confounding companies.
AOL ended an eight-year money-losing slump in 2012, the company announced this morning, as all of its divisions ended the year “quasi-profitable” for the first time under Tim Armstrong’s reign as CEO.
AOL was dubbed by some the “hottest tech stock of 2012.” You might question the use of the word “hottest” in that label, but it’s kind of true. Here’s a 12-month look at AOL shares (in light blue, at the top) followed by Netflix (dark blue), Yahoo (red), Google (green), Apple (yellow), and Microsoft (purple). Tim Armstrong is doing something right …
… but what is that, exactly?
The common refrain Friday morning on AOL’s good day was that advertising is leading the company back. This is true, kind of. It is true that revenue at AOL sites (like HuffPo, AOL.com, and Moviefone) is up, but profit for AOL’s online brands is actually down for the year by 34 per cent. The new profit engine, not only for the quarter but also the year, has been advertising on AOL’s third-party network, the company’s ad market for other online publishers.
But it’s the old profit engine that is still driving the company. AOL’s subscription business (the evolution of that gargling symphony of squeaks and whistles from the 1990s) is still more profitable than AOL as a company.
This is good news and bad news, as Henry Blodget observes. It’s good news because the profits from subscription services can be used to smooth AOL’s transition to a modern media and advertising company, and subscription cancellations are slowing down. But it’s also bad news because any company that relies on the inertia of septuagenarians who haven’t figured out how to get Internet without paying AOL for the privilege does not sound like a magnet for the sort of talent that drives long-term growth.
“What exactly is AOL?” you might ask yourself. As a consumer product, it’s a bunch of websites. As a business strategy, it’s an ad company. As a growth business, it’s a third-party digital advertising network. And as a profitable business, it’s mostly none of those things but rather, overwhelmingly, an anachronistic online membership service. Great stock. Weird company.
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