Many AOL (TWX) observers assume that the “belt-tightening” we reported a few weeks ago, combined with reorgs and sudden, significant cuts at AOL properties like Weblogs, mean that AOL’s ad revenue is cratering. Based on reports from elsewhere in the industry, this is a reasonable inference: MSN, Bankrate, Valueclick, and other companies have all reported major shortfalls, and the online ad market is clearly suffering.
That said, sources within AOL tell us that the company has not yet seen a major fall-off in ad revenue.
The Weblogs cuts, multiple sources say, are the result of over-spending at Weblogs in the past two months, not a sudden revenue shortfall. The cuts are thus designed to bring the division back in line with its original budget, not a frantic effort to bring costs in line with plummeting revenue. The firm-wide cuts, meanwhile, are said to be largely proactive rather than reactive: AOL is watching the same economy show as everyone else and doesn’t want to get poleaxed if and when the ad market goes to hell.
Now, we will be the first to admit we are sceptical of this information: The online ad market appears to be deteriorating at a rapid rate, and we assume AOL is feeling the effects of that. We expect the ad market will get worse in Q3 and Q4–these things don’t turn on a dime–and we expect that, within a couple of months, AOL’s cost cuts will be back to the “holy-sh**-revenue-is-tanking-and- we’re-going-to-miss-our-numbers-by-a-mile” variety. We also expect that AOL’s Q2 numbers will be disappointing, as usual.
Based on the latest information we have, however, we don’t think the Weblogs cuts or the belt-tightening measures we and others have reported mean that AOL’s revenue has suddenly hit a wall. (But if we’re wrong, by all means tell us.)
Henry Blodget: [email protected]