AOL's Q2 2010 Earnings, Or Can This Portal Be Saved?
For those who are still betting that former Google exec Tim Armstrong would lift AOL out of the darkness as its CEO, your wait is not yet over -- if it ever will be. The endlessly beleaguered company posted dismal earnings yesterday, and when you look at them in the context of broader Internet trends, it's easy to wonder if this portal can be saved.
Overall, ad revenue declined by 27 percent, meaning that AOL is not at all in keeping with the online media rebound. Even in the renewed display advertising category, AOL couldn't show a gain, posting a seven percent decline in the second quarter, as Yahoo posted a 19 percent increase. (Online spending gurus Kantar Media put the industry-wide increase in first quarter display at five percent; it has not yet posted second quarter statistics.)
But believe it or not, AOL's negative bucking of general online display trends isn't the biggest concern: for AOL (and Yahoo and MSN for that matter). The bigger problem is within the details of a report I posted about the other day from Nielsen. It shows that portals themselves are on the wane -- and if you're the weakest of the big portals, well -- that's extremely troubling. Overall, that study showed a 43 percent increase in the time Americans spent on social networks in the last year, while portals posted a 19 percent decline -- and the revenue numbers are lining up with the traffic numbers. It took advertisers awhile to figure out how to market in a social network environment, but it appears they're learning fast. Yesterday, Facebook COO Sheryl Sandberg told Bloomberg that major advertisers were increasing their investments in Facebook tenfold compared to last year.
In addition to the inherent "stickiness" of social networks, because you get to check up on the relationship status and so forth of your friends all day long, the other dynamic at work is that social nets also provide much of what portals do -- email, instant messaging, and content. If you've got a robust social media circle, it's interesting how you cease to need a portal to find the content you care about -- your online posse has already aggregated it by sharing links of mutual interest.
The answer would seem to be to get in on social networking, which former AOL management saw, but ultimately looked in the wrong direction, buying a social network that no one cares about, Bebo, for $850 million only two years ago. One reason AOL's earnings look so bad is it recorded a $1.4 billion goodwill impairment charge, partly due to selling Bebo off for somewhere in the neighborhood of $10 million earlier this year. If you're going to get in on social networking, you've got to do so with a player.
The bottom line: it's hard not to look at AOL and be pretty pessimistic.
Related: