Mixed Quarter for AOL

Slight rise in ad revenues, as Armstrong touts company's premium content

AOL chief Tim Armstrong says that he wants to build his company into one of the world’s leading media concerns. The road there is proving a little bumpy.

In their Q2 earnings call to analysts and investors this morning, AOL managers revealed that while ad revenue was up for the first time since 2008 (with a 5 percent rise in ad revenue from a year ago and a growth last quarter in display ad revenue for the first time ever), overall revenues saw a decline of 8 percent year over year to $542.2 million, a drop that Armstrong attributed to traffic declines in AIM and Mapquest, as well as the continued drop in subscriptions to the company’s Internet access services.

It's not great news in the short term, since today’s earning announcement follows on steep revenue and profit declines last quarter and a precipitous drop in AOL share price for the year. (On that point, Armstrong said, “As a shareholder and investor, the current valuation of AOL does not sit well with me.”)

But the modest growth in ad revenue did serve to bolster Armstrong’s theme for the future which, as he reiterated multiple times in the course of the call, is a “singular focus” on “becoming the next great media company in the digital age.”

“We want to be one of the top three players in the media [world],” he said. “We’re making changes with that goal in mind.”

One of the big changes Armstrong made to that end recently was to fire the company’s head of ad sales, Jeff Levick, late last month—and appoint AOL’s acting COO at the time, Ned Brody, to take his place. “This is not a reorganization of our sales force or a resetting of our strategy,” Armstrong said this morning about that move. “This is about us improving the operations of our advertising business globally.”

AOL has also been rapidly expanding on the content side, perhaps most notably with the acquisition in February of the Huffington Post, which Armstrong said the company plans to continue to grow globally. But that growth entails costs, and according to AOL CFO Artie Minson, the company incurred $5 million in nonrecurring outlays that went toward integrating the new acquisitions into the fold. Quarter over quarter, Minson said AOL saw $18 million in expense increases.

Armstrong is betting big dollars that the march toward an ad-supported business model, a media business model, will end up paying off. He's certainly spent a lot of money trying to make it so. “I don’t care what the press says about this company,” Armstrong said in his closing remarks. “We’re competing in the media space.”

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