AOL's tanks by 11% after revealing its new five-year plan

Tim Armstrong AOL Portrait IllustrationMike Nudelman/Business InsiderAOL CEO and chairman Tim Armstrong.

AOL’s stock is down 11% after the company’s senior management team gave its outlook for 2015 during its Q4 earnings call.

In short, the company described 2015 as an “investment year” and said that there may be “disruption” in the first two quarters of the year as it recovers from a major restructure that has seen the company lay off scores of its ad sales staff as it refocuses the business around programmatic advertising and its most popular content brands, like the Huffington Post and TechCrunch.

But the drop in AOL’s stock may not just be short-termist shareholders reacting: Tim Armstrong, AOL CEO and chairman also laid out his five-year strategy for the company.

The areas of focus and investment fall into six main strands, he said:

1) Huffington Post and Huffington Post Live. Armstrong described how he sees content brands like Huffington Post scaling to become as big as the networks its content is distributed on: “half a billion to a billion” connected users. Those users will be able to access content across multiple platforms: “Omni-channel, OTT, to mobile, to in-car and beyond.”

2) Tech brands and women’s brands. Here the area of investment will be in video, across brands like TechCrunch, Engadget, and Makers on the women’s side.

3) The ad stack. This refers to both the brand advertiser and publisher services front.

4) Sales structure. AOL wants to create and broaden out an enterprise sales team and a content brand marketing team.

5) The core AOL brand. AOL plans to grow the audience across its branded products like AOL.com and AOL mail.

6) Talent. “Culture and code” is going to be a central focus, Armstrong said.

Funding for all of those areas will come from “existing and lower priority” operations, as demonstrated in its recent sales layoffs and by folding smaller content sites into larger ones, like TUAW into Engadget.

More on those layoffs

The impact of those layoffs will also have an immediate impact on sales, with AOL warning there could be “disruption” in Q1 and Q2, with domestic display decline of “high single digits” over that period. Across 2015 as a whole, AOL said the impact of its salesforce restructure, a relaunch of the systems behind its One By AOL platform, combined with currency exchange rates, will see revenue negatively impacted by 2%, but that the company should post a “low to mid single digit growth rate.” OIBDA will be down in Q1 and Q2 and flat for the year, AOL’s chief financial officer Karen Dykstra warned.

Armstrong described the thinking process behind the restructure: AOL went through a “massive customer segmentation,” breaking its advertiser base down to the top 100/200 customers, and then mid-sized customers. For the smaller customers, AOL realised it had a huge ad product portfolio, but they were actually buying only a few products.

So the size of the salesforce has changed to put more resources behind the top customers — which covers all bases including content marketing, programmatic advertising and more enterprise-like advertising solutions. Mid-sized customers aren’t being forgotten — there are still plenty of products available — but there will be less human support than before. As one source close to AOL told Business Insider when the layoffs were first announced, that lack of support may see some clients becoming “enraged.”

The net positive result of these changes, Armstrong hopes, is that its platforms business will be a “significant growth driver for the company.” What will really set AOL apart from rivals is its “bring your own data strategy,” Armstrong said. Unlike other players in the market that may have more proprietary data or don’t share data (he didn’t name names, but we assume Google and Facebook) AOL says it is on its way to developing the equivalent of an app store for advertisers and publishers, where they can choose to bring their own data “apps” like Nielsen or BlueKai into AOL’s system to better target their ads and measure the effect of their campaigns. Other platforms dictate which third-parties you can use, while AOL says its “open strategy” has been “received well” by customers.

Dykstra said the company is laying the foundations to “make sure the next five years as a public company will be even more successful than our first five years.” By focusing on programmatic, which requires human sellers, and improving the quality of its content in order to sell more premium advertising, she believes AOL can remove up to $US130 million in operating expenses and grow margins to “at least the 10% range” in 2015.

But as AOL warned, there will be a couple of tough quarters ahead before we see the seeds of the five-year strategy budding into real growth.

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