AOL Earnings Show a Company in Search of a New Identity

“AOL takes a major step forward today with another quarter of growth and our agreement to acquire the Adap.tv video marketplace platform that will make AOL a clear global leader in the most important growth segment in our industry — online video,” said Chairman and Chief Executive Officer Tim Armstrong in the company’s earnings press release.

It may have been another quarter for growth, but second-quarter earnings fell 97 percent from the year-ago period, which received a boost from several sales.

AOL’s (NYSE:AOL) earnings largely mirrored its earnings from last quarter, excluding the sale. The company experienced solid growth in its advertising network division and its publishing business while its dial-up subscription — once a large source of revenue — continued to dry up. Yet, the company still derives most of its profits from its subscription business, and while that segment is in decline, its losses have narrowed.

Signs that Armstrong’s efforts to transform AOL into an ad-supported content company was the right move were evident in the results. In fact, the results were evidence that AOL is a far different company than it was in early 2012 when its advertising and publishing businesses were struggling and AOL was selling assets — like its patent portfolio — to stay afloat. AOL’s second quarter beat analysts expectations.

The company reported a profit of $28.5 million or 35 cents per share — a decrease from the $970.8 million or $10.17 per share AOL earned a year earlier. AOL’s second quarter included a net charge of 11 cents per share, which came from restructuring, write-downs, and other items. Comparatively, the year-earlier quarter included a net gain of $9.93 per share, the result of selling assets and disposing of licensing income and other items. Revenue increased 1.9 percent to $541.3 million.

AOL reported that its advertising revenue increased 6.9 percent to $361.2 million, while search advertising revenue grew 8.3 percent, global display revenue rose 4.5 percent, and third-party network revenue jumped 8.9 percent. Revenue from Internet-access subscriptions dropped 5.4 percent to $166 million, but churn — or the percentage of customers canceling services — decreased to 1.4 percent from 1.7 percent in the year-ago quarter.

In pursuit of its new identity as an ad-supported content company and to position itself as a serious competitor to Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO), AOL announced on Wednesday, along with its earnings, the acquisition of an automated video ad server start-up Adap.tv for $405 million.

This purchase will help the company move forward, giving it a new set of tools known as ad tech stack that allow publishers and brands to buy and sell online advertising in real time. Improving its ad tech stack will help the company attract more revenue from third parties and give a financial boost to its own publishing properties like AOL.com and the Huffington Post.

“Two trends are prevalent in the video space right now — the movement from linear television to online video and the shift from manual transactions to programmatic media buying,” said Armstrong. “Adap.tv is positioned squarely in front of the huge opportunity these trends are presenting.”

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