Some analysts buy the reasoning and the stock is up. However, if you look at the larger picture, the overall results are discouraging. Growth in display ad revenue would have to jump through the roof to compensate for suckage in the rest of the business.
To get a more complete view of AOL revenue lines, I assembled a table, based on data from the company's earnings releases, for the last 10 quarters (click to enlarge):
Display ad revenue was up by just under 4 percent compared with the same quarter in 2010. Higher stock prices show that the markets have cheered the news. Certainly, it's better than yet another year-over-year stick in the eye. However, nothing here suggests a turnaround. Look at the graphical representation of the different revenue lines and totals (click to enlarge):
The dial-up business still dying a slow death. Duh
That said, total revenue is still down 17 percent year-over-year for the quarter, or $112.9 million. The subscription business continues to die off as people realize that they don't need to pay AOL for services. The curve is flattening out a bit, so perhaps the company will eventually hit a core of people who actually still use dial-up and haven't passively continued subscriptions for no reason. But that doesn't solve the drop-off of search advertising.
Granted, Armstrong is all hot and bothered over the company's large ad format, in which one campaign takes up all the ad spots on a given page. Click-through rates are nearly double the smaller ads, so AOL claims, and the large ads offer 6.4 times the "engagement" (however the ad sales people define it).
Nevertheless, to make up for the total loss, display ads would have had to grow at an enormous 93.8 percent rate. And the money pumped into Patch, the hyperlocal news service, continues to swell, with another $40 million into a hole that had better soon bottom out. The question becomes what AOL has to do going forward. It has the following realistic choices:
- rapidly increase the larger ad rollout and hope that advertisers will see enough value past pilot programs to spend more money (and that readers don't get so annoyed with overwhelming ads that they go elsewhere or get numbed to the approach)
- reduce spending even more (and is Patch really worth all that money?)
- make a push on third-party ad revenue