AOL now expects domestic ad revenues to shrink in the first quarter on a year-over-year basis, JPMorgan analyst Imran Khan points out in a note today, citing AOL’s just-filed year-end report to the SEC.
This is worse than AOL’s previous guidance for flat year-over-year Q1 domestic ad revenue, which it supplied on its Q4 earnings call, Khan notes. Domestic display revenue grew 1% year-over-year in Q4.
Why? This is an AOL problem, related to its sales force restructuring, Khan notes — not a broader macroeconomic or industry related problem. Khan still expects Yahoo’s display revenue to grow 7% this quarter.
Here’s the relevant part from AOL’s 10-K:
We expect that our advertising revenues on both AOL Properties and the Third Party Network will decline significantly in 2010. We believe that advertising revenues generated on AOL Properties will be negatively impacted by the decline in our domestic AOL-brand access subscribers, particularly as it relates to search and contextual revenues, as well as our plan to cease or reduce operations in a number of countries. Visibility into advertising revenue for the full year of 2010 is limited due to the impact of our previously announced restructuring efforts, including the restructuring of our advertising organisation, and the fact that many advertising agreements are executed during the quarter that the advertising is displayed. However, based on current information, we believe domestic display advertising revenues will decline in the first quarter of 2010 as compared to the first quarter of 2009 as a result of our advertising sales organisation restructuring which resulted in the reassignment of a majority of our advertising accounts, significantly lower monetization of AOL Properties through our Third Party Network and an approximate $5 million reduction (which represents an approximate 40% year-over-year decline) in advertising revenue related to legacy agreements on certain AOL Properties. Finally, our Third Party Network revenues will be negatively impacted in 2010 by the international reductions and closures previously discussed as well as the de-emphasis of our search engine campaign management and lead generation affiliate products, which are discussed in “Overview—Third Party Network” above.
See Also: Meet The Ex-Googlers Running AOL