AOL Earnings Dip, Global Ad Revenues Grow

Driven primarily by programmatic and network sales, AOL once again beat Wall Street’s revenue expectations during the first quarter. The Web veteran said on Wednesday that it generated $583 million in revenue -- up 8% year-over-year.
 
Due to restructuring charges, however, earnings were down from $35.9 million (or 32 cents a share) a year ago to $9.3 million (or 11 cents a share) this quarter. (Adjusted earnings per share were 34 cents a share.)
 
“Overall, I am pleased with Q1,” Tim Armstrong, AOL’s chairman and CEO, told investors on a Wednesday morning earnings call. “We are mechanizing media and advertising, and our strategy is narrowing based on where we see significant opportunities for consumer growth, partner growth and customer growth.”

Global ad revenue grew 16% year-over-year, thanks in large part to 55% growth in Third Party Platform revenue. This was led by growth in the sale of premium formats across AOL’s programmatic platform and by the inclusion of revenue from Adap.tv.
 
Yet the Web veteran saw a 3% decline in global display revenue, which it attributed to the dissolution of certain properties such as Patch.
 
The absence of Patch and other properties cost AOL about $10 million during the first quarter, it said. Excluding these impacts, display grew 4% driven by improved overall inventory pricing.
 
AOL also reported a 1% decline in global search revenue, which it blamed on a decline in core search queries.
 
“As Q1 started, we faced a slow January that was driven by headwinds, partially by search,” Armstrong said on Wednesday. “Our team at AOL quickly and directly addressed the headwinds, and were able to parallel process our growth opportunities while implementing cost mitigation efforts.”
 
During the first quarter, adjusted OIBDA grew 2% year-over-year, driven by total revenue growth and a 9% decline in general and administrative expenses.
 
The cost of revenues increased $64 million year-over-year, due to a $53 million increase in traffic acquisition costs.

The report comes a day after AOL announced the acquisition of Convertro -- a consumer tracking platform with attribution modeling technology -- for about $101 million. Combined with AOL Platforms, AOL expects Convertro to help marketers more accurately identify and value consumer touchpoints.
 
AOL’s continued investment in programmatic ad technology is no surprise. The company’s recent growth is heavily attributed to programmatic display advertising, as well as its Adap.tv property, which has had success selling premium video ads.
 
Spending on real-time bidding (RTB), which accounts for about half of US programmatic ad buys, grew 76.5% in 2013, according to eMarketer.
 
This year, RTB spending will increase 43.4% to total $4.86 billion, and should continue to increase rapidly -- growing 36.6% in 2015 and another 31.4% in 2016.
 
In 2013, AOL accounted for 2.3% market share of digital advertising in the US, according to eMarketer.
 
Despite the fact that eMarketer projects double-digit net ad revenue growth for AOL in 2014 (11.3%), for the first time since before the recession, the company's market share is still expected to drop this year to 2.2%.
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