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ECommerceTimes.com
Salesforce Commerce Solution Guide

AOL Back in Black

By Erika Morphy
Feb 3, 2010 12:47 PM PT

In its first earnings report as an independent company, AOL posted a small profit for Q4. It recorded net income of US$1.4 million, or 1 cent per share, for the quarter. In the same period a year ago, it lost $1.93 billion, due to a $2.2 billion noncash impairment charge.

AOL Back in Black

Revenue declined 17 percent to $809.7 million -- down from $974.2 million from the same quarter a year prior -- due to a drop-off in both subscription and advertising levels. Subscription revenue dropped 28 percent to $307.4 million; advertising revenue dropped 8 percent to $471.6 million.

Display advertising in the U.S. rose 1 percent to $151.7 million, while outside the U.S. it fell 22 percent. Search and contextual advertising fell 19 percent compared to Q4 2008. AOL attributed this to a 27 percent drop in Internet subscribers who tend to use its search function more frequently.

Mixed Bag

AOL's earnings were a mixed bag of positive and negative results, Fred Ruffy, senior trading analyst at WhatsTrading.com, told the E-Commerce Times.

Even though revenue fell year over year to $809.7 million, the number was better than analysts had expected. Display advertising may have registered just a 1 percent increase -- but it was the first time domestic display showed year-over-year revenue growth in eight quarters, Ruffy pointed out.

"Clearly, the company still struggles, as it is suffering from declining subscribers and a relatively weak brand in today's new media world," he said.

AOL's Goals

AOL still has a lot to do. As a standalone company, it has laid out a number of goals for 2010, which include increasing its user base, launching a paid service platform, and completing a new search deal, Ruffy said. "The company seems to be on the right track, making some progress, and that helps explain why shares are up 7.7 percent since they started trading again on December 10."

Certainly, executives at the company are looking at the long term -- and urging investors and advertisers to do so as well. Chairman and CEO Tim Armstrong told listeners on an earnings conference call to look beyond the quarterly report as the company "is not a quarterly project."

Since the Spin-Off

Indeed, AOL will be marking its 25th anniversary this year, although 10 of its years were spent under Time Warner's corporate umbrella.

After that dismal relationship ended, AOL relaunched on its own with a new brand and a new emphasis on display advertising and expanded content.

The company dismantled about 60 percent of its display ad slots in order to give the advertisers that remained with it premium placement. Both Armstrong and CFO Artie Minson, also on the call, emphasized AOL's emphasis on premium.

The Operating Side

AOL's profit could also be attributed to some savvy financial management -- at least from the perspective of shareholders.

It significantly reduced its headcount as it launched.

"Employees are usually the biggest expense for these companies, so that was a smart move," noted Scott Testa, a business professor at Cabrini College.

AOL has "been very careful with costs, even as it has made strategic investments," Greg Sterling, principal of Sterling Market Research, told the E-Commerce Times.

If AOL does get past the current slump to succeed long term, it will be due in large part to this type of nickel and diming, he said. That is because the company currently lacks a strategic go-to-market plan that is significantly different from competing portals.

"From a strategic point of view, Yahoo and AOL don't sound all that different from each other," remarked Sterling. "Basically, they are focusing on display advertising and content with a view to monetizing both as much as possible. Who isn't doing that?"


Salesforce Commerce Solution Guide
When using a search engine, how often do you look beyond the first page of results?
Never -- There's always enough information on the first page to meet my needs.
Rarely -- There's usually enough on the first page, but sometimes I want to see more.
Occasionally -- If there are too many paid-for results, or if I don't find an answer on the first page.
Often -- Even if there's enough information on the first page, I like to know what else is available.
Always -- First page search results are rigged; I don't want to be limited to what an algorithm highlights.