AOL Boosts Ad Growth, Businesses Managed By Segment

by , Feb 8, 2013, 4:55 PM
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Continuing a bold turnaround, AOL on Friday said fourth-quarter revenues were up 3.9% year-over-year -- to nearly $600 million -- which represented the company’s greatest sales gain in eight years.
 
AOL’s quarterly performance was so strong, in fact, that it caught some analysts off guard. “Admittedly, I am a bit surprised the earnings went up as much as they did,” said Shar VanBoskirk, a principal analyst at Forrester Research.
 
Yet while impressive, AOL’s revenue growth is no miracle, according to VanBoskirk. “I'm not surprised to see AOL's earnings go up, based on the growth we see happening in the online display advertising space,” she said. “There is lots of money going into online advertising today.”
 
AOL "appears to have turned the corner," Cantor Fitzgerald analyst Youssef Squali wrote in a Friday research note.
 
Tim Armstrong, AOL chairman and CEO, attributed the strong quarter to healthy increases in global ad revenue, which grew 13% year-over-year. Looking ahead, “AOL has strong momentum entering 2013 and is positioned to continue on our growth path,” Armstrong said on Friday.
 
Half-agreeing with Armstrong, Cantor’s Squali wrote: “AOL is entering 2013 on stronger footing, but our visibility into revenue acceleration/margin improvement remains relatively poor.”
 
According to Squali: “Management commented that it's currently seeing (year-over-year) growth in domestic display, but was hesitant to project sustained (year-over-year) growth for 1Q.” Overall, global display revenue was flat in the fourth quarter, according to AOL, while domestic display revenue actually experienced a 3% decline.
 
Going forward, AOL said it will manage its business by segments, including “The Brand Group” (AOL.com, the Huffington Post, Patch, TechCrunch and MapQuest); “The Membership Group," which consists of offerings that serve AOL’s registered account holders, both free and paid; and "AOL Networks,” AOL's offerings to publishers and advertisers using AOL’s Third Party Network, as well as AOL Properties inventory sold by AOL Networks.
 
Faring especially well, AOL Networks fourth-quarter revenue increased 37% versus the prior-year period, driven by 31% growth in Third Party Network revenue, which included $9.2 million in advertising revenue sold by Ad.com Japan. (AOL began consolidating Ad.com Japan in the first quarter of 2012.)
 
Third Party Network revenue reflected revenue from the sale of inventory from third-party properties through Advertising.com, while its growth continues to be driven by an increasing number of publishers and advertisers on the network as well as increased sales of premium packages and products, according to AOL.
 
In addition, AOL Networks revenue growth also reflected an 88% increase in the sale of AOL Properties inventory sold through Advertising.com.
 
AOL also reported on Friday that cost of revenues increased $230 million year-over-year, which it said was driven by a 25% -- or $21 million -- increase in Traffic Acquisition Costs related to 37% growth in AOL Networks revenue, and increased TAC related to search-marketing initiatives.
 
Overall, fourth quarter adjusted OIBDA of $123.3 million excluded $13.3 million of special items, including $7.1 million of patent sale and license costs, primarily related to a special year-end employee bonus related to the patent transaction, and costs associated with the $5.1 million acquisition of Buysight.

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