AOL Revs Up 6%, Propelled By Global Ad Growth

Despite AOL’s best efforts to cut costs at Patch, the local news unit cut deeply into third-quarter earnings, the Web giant revealed Tuesday morning.
 
On the bright side, total revenue for the quarter grew 6% year-over-year, driven by strong global ad growth.
 
“We’re very bullish on our owned-and-operated properties,” AOL head Tim Armstrong said on an earnings call Tuesday morning.
 
Global ad revenue grew 14% year-over-year, driven by 32% growth in Third Party Network revenue -- which, in turn, was driven by growth in the sale of premium formats and video in particular. Third Party Network revenue includes $17.6 million from Adap.tv -- following its September acquisition of the programmatic video ad specialist -- and rose 17% excluding Adap.tv.
 
Global display revenue increased 5% -- attributed by AOL to improved pricing -- while global search revenue grew 3%.
 
Going forward, however, fierce competition is AOL’s biggest problem, analysts said on Tuesday. Indeed, while AOL is expected to see continued growth, the company is also expected to lose market share as competitors like Google and Facebook grow faster, according to eMarketer.
 
AOL will see its share of the $117.6 billion global digital ad market decline to less than 1% (0.94%) in 2013 -- from 1.02% in 2012 and 1.17% in 2011 -- eMarketer predicted on Tuesday.
 
It is a similar story for AOL domestically, where the company -- despite seeing growth in areas -- is losing market share to faster growing rivals Google and Facebook. Stateside, digital ad spending grew 13.3% to $10.46 billion in the third quarter, according to eMarketer, compared to the same period last year.
 
On an annualized basis, AOL’s share of U.S. digital ad spending is expected to decline to 2.3% in 2013 -- down from 2.5% last year, according to eMarketer -- as Facebook’s share of U.S. digital ad spending increases to 7.1% in 2013, up from 5.9% last year.

In the third quarter, Patch cost AOL $44 million in restricting costs and asset impairments, according to AOL.
 
On its second-quarter earnings call this summer, AOL announced plans to significantly cut Patch’s national network. Steven Kalin, Patch’s CEO at the time, was promptly replaced by AOL executive Bud Rosenthal. Soon after that, about 350 editors got the axe, while AOL said it would try to find other work for another 150.
 
During Tuesday's quarterly earning call, AOL also reported a $24.4 million increase in total Traffic Acquisition Costs, which was driven by TAC associated with Adap.tv, growth in its search marketing related efforts and growth in Third Party Network revenue.
 
Cost of revenues also reflects non-cash asset impairment charges of $10.4 million primarily related to AOL’s Patch operations, largely offset by lower network-related expenses

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