AOL Dumps a Lighter Load of Bad News

AOL delivered a little bit of something for everyone with its Q4 earnings report — good news, bad news, and hope that its many different initiatives are on track to pay off for the company.

First the bad news: AOL reported a profit of US$22.8 million, or 23 cents a share, that was down from the $66.2 million, or 61 cents a share, it earned in the same period a year earlier.

Revenue for the company dropped 3 percent to $576.8 million for the quarter, which ended Dec. 31. Revenue also declined for the year, falling to $2.2 billion in 2011 — a 9 percent drop from the $2.4 billion AOL posted in 2010.

Now the good news: The rate of decline is slowing. The 9 percent year-over-year revenue drop was the lowest rate AOL posted in the last five years.

As for the future, AOL pointed to the progress it has made in its advertising operations, which is one area it is counting on for future growth. Advertising revenue rose to $363.8 million last quarter, a 10 percent increase from the same period in 2010 — the third consecutive quarter of year-over-year growth. Display ad revenue rose 15 percent. That was the fourth consecutive quarter of year-over-year growth.

AOL did not respond to our request to comment for this story.

Digital Ad Revenues

For the moment, digital advertising is AOL’s path to financial stability. Online ad revenues in general are flourishing, despite the lackluster economy.

Internet advertising revenues in the U.S. reached $7.88 billion for the third quarter of 2011, according to the latest figures from the Interactive Advertising Bureau and PwC. That represents a 22 percent increase over the same period in 2010 and a 2.7 percent uptick from the second quarter of 2011. These results marked the eighth consecutive quarter of year-over-year growth.

AOL is focusing on its ad formats, particularly Project Devil — its large-sized ad format that supports various types of content and interactivity, launched more than a year ago.

On a conference call with reporters, CEO Tim Armstrong said AOL is developing a system that will let ad agencies build these ads in-house. The company plans to white-label its software user interface.

Acquisition Craze

AOL clearly wants to diversify its revenue streams, as can be seen by its two major acquisitions last year of Huffington Post, for $296 million, and TechCrunch, for an undisclosed amount.

Though the acquisitions will play an important role in the company’s future, advertising will always be integral to AOL, said Bryan W. Alaspa, client services manager with K Squared Communications.

“Ultimately, the way these companies make money is through advertising,” he told the E-Commerce Times. “However, by moving into online news and other formats, I think AOL could become a major player in the online world — but as a news source and content provider.”