Welcome! Here’s a look at AOL’s first quarter as a born-again public company.
We’re listening to the call now.
[NOTE: Unless it’s in quotes, it’s a paraphrase]
8:35: Tim Armstrong: We put the heartbeat and the will to win back in the company.
8:36: Tim says AOL will launch a new brand ads platform.
8:38, Now CFO Artie Minson is on the line.
8:39, Artie says our financial results will continue to drop due to the shrinking ISP customer base.
8:40, The key improvement in domestic AOL’s inventory was driven by a shift to premium inventory, return of financial advertisers, and growing consumer packaged goods advertisers.
8:41, [We’ll try to keep up with the numbers Artie’s spitting out here, but for a comprehensive look at them, go here.]
8:43, Artie says re-organising the sales force after layoffs could hurt sales.
8:43, He’s talking about a y/y shift away from the network and toward premium.
8:43, Many international markets are unprofitable and lack the infrastructure for success. So AOL is cutting back.
8:45, Combined search with contextual advertising revenue for reporting. There was a pullback contextual advertising on AOL’s properties. We expect search revenue declines to exceed the decline in 2009.
8:47, AOL is ending its search engine campaign marketing and affiliate businesses, which had revenues but no profits.
8:48, Artie sums it up: Shutting down stuff, we’re taking $225 million out of revenues. But this won’t impact earnings (profit).
8:50, Non-TAC operating expenses will shrink $150mm, net of compensation grants.
8:51, Artie’s talking about how AOL decided not to renew an ISP deal with a computer manufacturer as example of how the company is re-organising its costs around future core businesses.
8:53, Artie says “2010 will be a year of transition.”
8:54, And now we’re moving on to questions.
8:54, Mark Mahaney asks Tim to highlight products coming in 2010.
8:55, Tim answers: 1. Content (we launched Seed.com.) 2. StudioNow on the video side is very similar to Seed. 3. In advertising, we’ve been under development on a new ads platform. He says it works well with ad agencies. 4. In local, Patch. Material changes will be the new ad system and the content system. Artie says the investment in local will have an impact in results.
8:57, Ben Schacter asks about AOL’s “niche at scale” strategy, wonders if it’s not too dependent on search engines.
8:58, Tim says its not “niche” at scale, it’s “quality” at scale. He references Engadget, which won “blog of the decade.” Engadget serves a very specific audience, but it serves it at a scale national advertisers find very attractive. “We have a content plan which is based on hitting very important audiences with content that matters to them.” The plan is to fuel more properties like Engadget with Seed.com and StudioNow.
9:00, Tim says AOL content will see traffic from Twitter and Facebook, not just search. Search + Social networking + realtime communication + AOL properties + content partners through content sharing. “Internally we say fragmentation is our friend.”
9:01, Ross Sandler asks: Where is the better display performance coming from?
9:02, Tim says we’re pleased with the re-org. Says top 4 advertisers were all up y/y. We had strong growth in specific areas over the second half of 2009. Advertisers tend to vote where momentum is. We’re meeting advertiser needs.
9:03, Tim says there’s some more low-hanging fruit in upgrading AOL’s ad systems. If there’s one area that has low-hanging fruit is organising the sales force. More growth will come from share of wallet and opportunity to have more customers. The new ads platform will increase the number of customers AOL can have. Our sales team can compete head-to-head with anybody on the Internet. AOL was a company “people were used to kicking around,” but these days we’re “laser focused.” “On a head-to-head basis I’d put us up against anybody for display.”
9:08, Tim said when he got to AOL there was a set of distribution deals that “I wouldn’t say were healthy.” Says there were very heavy photo-galleries in the past. We have been very stringent about what we measure as success, it comes down to unique visitors. Tim says these we fluctuate.
9:10, A question about paid services. Tim says its more than dial-up, AOL sells services to other ISPs. We’re looking into more of that. Not a big deal, but looking at it.
9:11, Doug Anmuth asks a question. Wants Artie to clarify Op-Ex savings and Doug wants some help on legacy ad deals.
9:11, Earlier, AOL said it would save $300 million in op-ex due to cost cuts. Artie says $150 mm will come in 2010 and that’s ahead of schedule. Artie took out some ad businesses (affiliate and SEM) that strategically didn’t help AOL grow its display business.
9:13, Tim says AOL was hooked on pageviews and gross revenues. Says there will be fluctuations in gross, but net is what will matter now.
9:14, An analyst asks if AOL will buy more companies and if the StudioNow price is what to expect.
9:14, Tim says the product toolkit needs consolidation. We need to be very clear about which platforms are we betting on. The product team at AOL was disbanded a number of years ago and we’re bringing it back. Engineering is focusing on cloud services. AOL will open its platform to more developers. AOL is not necessarily the most open platform and its missing out.
9:16, Tim says the $37 million StudioNow acquisition is about the right price. “We’re out of the hail mary business.” “StudioNow is a great example of what we hope to do in the future.”
9:17, Tim talks about what he wants in a search deal. We’ve had a great partnership with Google. Our needs are changing. Looking for a longer-term partnership with aligned incentives. We wont’ be squeezing dollars and pennies out every quater. You should expect to see a deal that mechanically looks like its set up for our strategy (display). Financially, it’ll be reasonable for us and our partner.
9:18, Clay Moran asks about how a $100 mm CapEx can compete with biggies like Yahoo.
9:19, Artie says he can’t comment on Yahoo’s CapEx. Says AOL’s is fine. “There’s nothing we feel we should be investing in that we’re not investing in.”
9:20, How important is free cash flow?
9:20, Artie says we are not going to manage for the short term. We will do the right things for the long term. Tim says AOL’s history shows spending a lot of money didn’t help. “We can make a lot of improvements to this company without spending money.”
9:23, Artie says some assets will be sold if AOL can get a good deal.
9:23, Analyst Imran Khan takes the line. Says there’s scepticism on display advertising. That there’s too much inventory and that it doesn’t work. Wants to know how AOL will counteract.
9:24, Tim says there’s less apprehension than Imran thinks. Regarding inventory, Tim says brand advertising offline or online hasn’t really changed. Brands like to connect themselves to good brand experiences. You want to put your brand next to other good brands. That’s what our strategy is about. High quality content that are attractive and transitional for brand advertisers to go from the offline world to the online world. As for measuring brand advertising, our job at AOL is to make it so consumers are willing to spend more for branded detergents over non-branded detergents. “Period. Full stop.”
9:30, Artie says we added 150 new advertisers in Q4. Tim says it comes down to user-engagement and us being able to do high-value properties.
9:30, Tim wraps up the call. Thanks everyone for coming back after a decade. Highlight from 2009: “Artie and I are incredibly happy.” “We care more about execution than you do.” “I hope if you’re thinking about being a shareholder or are a shareholder, we hope you stay with us.” Tim thanks the employees.
That’s a wrap!
Here are some slides:
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