(Adds analyst comment, more financial detail)
By Jennifer Saba
May 7 AOL Inc on Wednesday said its
quarterly profit declined, with its stock price falling 22
percent as it missed earnings expectations due to the cost of
restructuring its digital and media entertainment businesses.
Net income dropped 64 percent to $9.3 million because of
costs related to workforce reduction and a $10 million
impairment charge for software at the division that operates its
legacy subscription dial-up services.
First-quarter earnings per share of 34 cents fell far short
of the average analyst estimate of 45 cents and overshadowed
growth in revenue and advertising sales. In the year ago period
adjusted EPS came in at 41 cents.
"The first quarter is weak, and we think the market is
overvaluing the quarter, rather than looking at the strategic
vision of AOL," said Laura Martin, an analyst with Needham and
AOL executives said on a conference call with analysts that
the first quarter tended to be soft because of seasonality.
Still, AOL said first-quarter revenue rose 8 percent to
$583.3 million, topping estimates of $577.7 million, according
to Thomson Reuters I/B/E/S.
Revenue was boosted in part by a 43 percent surge in ad
sales through AOL's automated electronic exchange to $230.8
million, helped in part by the acquisition of video advertising
AOL, which owns the Huffington Post website and the
TechCrunch blog, has been investing in advertising, especially
in the so-called programmatic side, referring to the
machine-buying and selling of digital advertising.
Nomura analyst Anthony DiClemente wrote in a note to
investors that AOL's mobile traffic and display pricing were
improving. But there was still no clear sign of stable growth in
pricing for ads bought by automation and improved operating
profit margins. The company also needed to find more ways to
generate revenue from its media properties, he said.
Part of the problem is that AOL's ad technology division
reported an adjusted operating loss before depreciation and
amortization of $3.5 million, wider than the $2.5 million loss
in the same quarter last year. AOL said it was investing heavily
in this area.
On Tuesday AOL said it would pay $101 million to acquire
Convertro Inc, a platform that helps advertisers manage spending
budgets across different media.
In an interview with Reuters, AOL Chief Executive Tim
Armstrong said he sees upside in automated buying and selling.
"We believe that Madison Avenue will get mechanized over the
next decade and so will the content business."
The company has been unloading properties, including Patch,
its network of local websites, and has unveiled a one-stop
advertising platform aimed at changing the media-buying process
for digital advertising.
Advertising is an important revenue stream for AOL, and its
growth is critical to its overall performance, especially as
subscription revenue from its dial-up service slips away.
"Our view is that 2014 is going to be a good year for AOL,"
Needham's Martin said, citing the company's video, mobile and
automated ad platform business.
AOL shares closed down $9.05 at $34.85.
(Additional reporting by Soham Chatterjee; Editing by Simon
Jennings, Jeffrey Benkoe and Chizu Nomiyama)