AOL Revs Up, Programmatic Fuels Growth

Thanks to healthy ad sales, AOL on Friday reported a 7% rise in first quarter revenue -- to $625.1 million -- and adjusted earnings per share of $0.34. Analysts were expecting $595 million in revenue, and adjusted EPS of $0.32.

“We’ve done a very good job … with premium formats and video,” AOL CEO Tim Armstrong told analysts on a conference call, on Friday.

During the quarter, however, AOL saw a 7% decline in display revenue, which the tech giant blamed on fewer desktop impressions -- as mobile usage continues to rise. AOL said increased display ad pricing partially offset the revenue decline.

Overall, Brand Group revenue still grew 8%, year-over-year, which AOL said was driven by 28% growth in search revenue on increased revenue per search primarily from search marketing-related efforts.



Along with international growth, Karen Dykstra, Chief Financial Officer at AOL, attributed the generally strong performance to better “sales alignment,” and “better utilization of our network.”

During the first quarter, revenue from global advertising was up 12%.

AOL Platforms revenue grew 21% year-over-year, driven by 19% growth in third-party properties revenue -- reflecting growth in the sale of premium formats, including video, across its programmatic platform.

Revenue growth further reflected the increased adoption of AOL’s programmatic products, which drove growth in revenue from platform access and services fees. Revenue growth also reflected 35% growth in revenue from AOL Properties inventory sold through its programmatic platform.

Last week, Goldman Sachs analyst Debra Schwartz downgraded AOL’s stock from neutral to sell on the belief that restructuring costs and a shift towards programmatic advertising were hurting sales. Schwartz also expressed concern over a perceived “monetization gap” between AOL's mobile and desktop traffic, and the growing threat of Facebook’s off-platform ad offerings.  

Year-over-year, cost of revenues increased $34 million, which AOL attributed to a $46 million increase in traffic acquisition costs (TAC) associated with the growth of profitable search and third party properties revenue.

Industrywide, programmatic advertising in the United Stated increased 135.5% to reach $9.99 billion in 2014, according to eMarketer, and is expected to grow another 48.9% in 2015 to reach $14.88 billion. That figure will represent 55% of all digital display advertising.

Next year, programmatic advertising will reach $20.41 billion -- or 63% of the display ad market -- eMarketer forecasts.

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