AOL third-quarter ad sales boost overall revenue and profit

NEW YORK, Tue Nov 6, 2012 – AOL Inc. reported higher-than-expected revenue and profit on the strongest advertising growth the company has seen in seven years.

AOL said on Tuesday that third-quarter revenue was flat at $531.7 million, ahead of the analysts’ average estimate of $521.6 million, according to Thomson Reuters I/B/E/S.

Advertising revenue rose 7 percent to $340 million, while subscription revenue for AOL’s dial-up services fell 10 percent to $173.5 million.

Subscription revenue had its lowest rate of decline in six years.

These trends are helping AOL since its turnaround hinges on the success of getting more online advertising dollars and reducing its reliance on the lucrative but moribund dial-up business.

“Things look great,” RBC Capital Markets analyst Andre Sequin said. “This company is continuing to make steps in the right direction.”

Still, there are troubling signs in the results. Domestic display advertising, where AOL is making a big effort, including with splashy acquisitions such as the Huffington Post, fell 3 percent in the quarter.

AOL shareholders re-elect board, reject dissidents in preliminary voting

BOSTON, Thu Jun 14, 2012 – Preliminary voting results show shareholders in AOL Inc. re-elected all eight of the company’s incumbent directors on Thursday, fighting off a challenge by activist hedge fund Starboard Value, Julie Jacobs, the company’s executive vice president and general counsel, told the company’s annual meeting on Thursday.

Jacobs noted that final results would be disclosed in a filing with the U.S. Securities and Exchange Commission.

AOL quarterly profit beats Wall Street forecast; display ads dip

DULLES, Va., Wed May 9, 2012 – AOL Inc. reported better-than-expected quarterly revenue and profit on Wednesday, although lower premium ad sales in the United States and subscriptions dragged total revenue down.

The company said first-quarter revenue fell 4 percent to $529.4 million, beating analysts’ average forecast of $526.5 million.

Total advertising revenue grew 5 percent on strong growth in third-party network ads and international growth.

But display advertising – big splashy units on Web pages that command high prices – hit a hurdle in the United States, where it fell 1 percent.

“I wasn’t surprised that much,” said Benchmark analyst Clayton Moran about AOL’s display ad revenue. “We saw similar weakness from Facebook and Yahoo.”

“It could be an industry thing or that Google is gaining so much (ad revenue) share that other parties are losing,” Moran said.

Late in April, Facebook reported its first quarter-to-quarter revenue drop in at least two years, blaming it on seasonal advertising trends.

Since its spinoff from Time Warner in 2009, AOL has been attempting to transform into a media destination dependent on advertising revenue, while at the same time winding down its lucrative dial-up service.

The company has snapped up a host of high-profile media properties, like the Huffington Post and TechCrunch, and has poured millions of dollars into a network of neighborhood news sites called Patch.

In the meantime, AOL has agreed to sell the majority of its patents for approximately $1 billion to Microsoft, which in turn is selling them to Facebook.

The company faces a looming proxy fight with one of its largest shareholders, Starboard Value. Starboard contends that AOL is not doing enough to return value to shareholders and has nominated a slate of three directors to the AOL board.

Facebook pays Microsoft $550 million for AOL patents

SAN FRANCISCO, Mon Apr 23, 2012 – Facebook will pay Microsoft Corp. $550 million in cash for hundreds of patents recently sold by AOL, the social networking company’s latest move to bulk up its intellectual property in the wake of a lawsuit filed by Yahoo.

The deal will give Facebook 650 patents and patent applications, as well as a license to another 275 patents and applications owned by Microsoft.

Microsoft trumped Amazon, eBay and other tech giants earlier this month with its more than $1 billion purchase of most of AOL Inc. patent trove.

Facebook’s deal with Microsoft comes as the world’s No.1 social networking company is preparing for an initial public offering that could value it at up to $100 billion and as Facebook fights a legal battle with Yahoo Inc.

Yahoo sued Facebook earlier this year, alleging that Facebook infringed 10 Yahoo patents, including several that cover online advertising technology. Facebook countersued Yahoo in April, alleging that Yahoo infringes 10 of Facebook’s patents.

In March, Facebook acquired 750 patents from International Business Machines Corp.

AOL CEO Armstrong’s compensation dropped in 2011

DULLES, Va., Tue Apr 17, 2012 – AOL Chief Executive Tim Armstrong’s compensation declined to $3.2 million in 2011 from some $15.3 million in the prior year, according to a regulatory filing.

The 41-year-old former Google executive did not receive any stock rewards or options in 2011 and received a base salary of $1 million, which remained unchanged from 2010.

The proxy filing also urged shareholders not to vote for the activist hedge fund Starboard Value’s slate of board nominees.

Starboard, which spun off from Ramius LLC in March 2011, launched a campaign late last year to shake up AOL. The hedge fund holds a 5.3 percent stake in the Internet company and has grown increasingly hostile, proposing its own slate for directors to address what it describes as AOL’s strategic failings.

In a letter fired off to the AOL board, Starboard called for AOL to pursue a sale of certain assets including its patent portfolio.

In the filing, AOL disclosed it was willing to nominate two new independent directors that “were mutually agreeable to the company and Starboard” to avoid a proxy fight. AOL board director Fredric Reynolds later proposed a settlement after Starboard’s stake in the company increased to 5 percent.

After AOL agreed to sell the majority of its patents to Microsoft for $1 billion on April 9, Reynolds again reached out to Starboard CEO and founder Jeffrey Smith to discuss whether they could resolve the dispute.

According to the filing, Smith was willing to reconsider his position only if the company would return all the proceeds of the patent sale to shareholders.

AOL had said it planned to return a “significant portion.” In its conversations with Starboard, AOL said it could not commit to a specific profit amount but it was willing to re-examine some of Starboard’s business strategies.

Starboard rejected AOL’s proposal, the filing said.

AOL to sell 800 patents to Microsoft for $1 billion

NEW YORK, Mon Apr 9, 2012 – AOL Inc. said it would sell over 800 of its patents and related applications to Microsoft Corp., and would grant Microsoft a non-exclusive license to the patents it retains, for slightly over $1 billion in cash.

AOL’s shares jumped 37 percent to $25.16 in trading before the bell on Monday. They closed at $18.42 on Friday on the New York Stock Exchange.

The Internet company said it plans to return a “significant portion of the sale proceeds” to shareholders.

AOL will continue to hold over 300 patents including advertising, search, and mapping, and said it received a license to the patents being sold to Microsoft.

“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” Microsoft’s General Counsel Brad Smith said.

Last month, media reports said that AOL had hired Evercore Partners after being pushed by activist shareholder Starboard Value LP who believed the company’s patent portfolio could produce more than $1 billion in licensing income if properly monetized.

The transaction, which is expected to be completed by the end of 2012, includes the sale of an AOL unit on which AOL expects to record a capital loss for tax purposes.

Evercore Partners and Goldman Sachs acted as financial advisors to AOL. Wachtell, Lipton, Rosen & Katz and Finnegan, Henderson, Farabow, Garrett & Dunner acted as legal counsel.

If the deal falls through, Microsoft will pay AOL a termination fee of $211.2 million, AOL said in a regulatory filing.

AOL profit drops, but beats Wall Street expectations

NEW YORK – AOL Inc. posted a drop in fourth-quarter profit, but beat Wall Street forecasts as a rise in display advertising offset an ongoing decline at its Internet dial-up business.

Earnings fell to $22.8 million, or 23 cents a share, from continuing operations from $66.2 million, or 60 cents a share, a year earlier.

Analysts on average expected AOL to post a profit of 16 cents a share, according to Thomson Reuters I/B/E/S.

Revenue dipped by 3 percent to $576.8 million.

AOL, whose media assets include Huffington Post and TechCrunch, said total advertising revenue rose by 10 percent to $331.6 million.

Overall display advertising – representing big splashy ads that appear on Web pages and command higher rates – rose 15 percent.

Subscription revenue from AOL’s dial-up Internet access unit declined by 18 percent.

Can AOL cook up a winner with Patch?

Stephen E. Arnold

In the last two years, AOL has become a target for criticism of its acquisition strategy. AOL purchased the controversial niche news service TechCrunch and then bought the even more controversial Huffington Post, making its founder Arianna Huffington, the editorial chief of AOL’s burgeoning online content operation.

One wit said, “AOL’s is changing its familiar ‘You’ve got mail’ to ‘You’ve got problems.’”

Despite the slings and arrows of financial television show hosts, AOL may have a trick up its sleeve. The company could, according to Auctionbytes, use its content to increase its share of the burgeoning market for online advertising.

The company acquired a local news and information company called Patch in June 2009, a company founded by Tim Armstrong. Armstrong was the president of AOL at the time of the acquisition, which means that Patch was important to the long-term content strategy of the floundering AOL. At the time of the acquisition, I assumed that Armstrong was negotiating the deal. In “Back to the Future,” AllThingsD.com reported that Armstrong allegedly told AOL staff that he would not make a profit on his stake in Patch. At about the same time, AOL bought Going, which was a social networking company.

News is circulating via blog stories like “AOL’s Patch, AmEx Targets Groupon with Patch Deals.” The idea is that AOL wants to be a player in the local online advertising market. What makes the AOL rumors interesting is that unlike some of the companies competing in this sector, AOL has local content, a social networking technology, millions of users and a number of high traffic websites that can generate buzz about AOL’s products and services. A Web watching blog, WebProNews.com said, “AOL Launches Patch Deals…Yes, Another Deals Service.” The blog crept out on a limb and said that the service would be a Groupon clone. The roll out is slated to take place in the fall of 2011.

First, what is Patch? The service is a bit like the local newspaper. Unlike the print publications that are created to serve a narrow geographic region, Patch describes itself as “hyperlocal news.” With most major newspapers chasing big stories and recycling content from various services and syndicates, information about the local soccer club tryouts and the junior college play schedule are difficult, even impossible to find. Google indexes billions of pages, but the search system does not make it easy for me to find out when the Montgomery County Seneca Valley High School book sale will be held this year.

Patch captures news and information from small cities. The goal in 2010 was to cover 500 U.S. cities. The company uses paid staff and has a “foundation” to help “improve the quality of life in underserved communities across the globe and through access to trusted local news and information.” One of the advisors to AOL Patch is Jeff Jarvis, a college professor and expert on Google. He complements a full lineup of professionals.

The one issue that I have is that I have not encountered anyone who uses Patch. In a recent story of local online advertising, the sample included in our research did not mention Patch a single time. AOL has a formidable marketing machine, but in the noise about local advertising, local search and local maps, AOL’s voice is not being heard.

There is a website, quite a fancy one in my opinion. Navigate to Patch.com. You will see a list of states in which the local information service operates. I am writing this column for a company based in Cleveland, Ohio. According to the map of Patch coverage, Ohio is one of the states the service covers. Kentucky is not so lucky. Neither is Texas, Indiana, Oregon and two dozen others.

The cities Patch “covers” in Ohio are Avon Lake, Avon, Beachwood, Brecksville, Cleveland Heights, Cuyahoga Falls, Fairlawn-Bath, Hillcrest, Kent, Lakewood, Mentor, North Canton, Solon, Stow, Strongsville, Twinsburg and Westlake.

If we dive into a community with which I have some familiarity, Cuyahoga Falls is among the more affluent cities within commuting distance of Cleveland and the now shuttered marine park. A click on the Cuyahoga Falls Patch link displays news about a ceramics program for those 60 and up, a “Mid Day Serenity” event at the Paradise Club and ballroom dance lessons at 6:30 p.m.

The content seems to be a blend of bylined stories; for example, the “Q&A with Woodridge Graduate Jessie Greene-Hill” was written by Alanna Klapp, who is a freelance writer.

For a merchant in Cuyahoga Falls, the opportunity to put a message in front of Patch information consumers in Cuyahoga Falls makes perfect sense. There is one big challenge — traffic. Small communities will have smaller populations. Cuyahoga Falls is a reasonably affluent community, so one would expect that most households would have a computer and a good percentage Internet access. Smartphone penetration would also be higher than the phone penetration in Harrod’s Creek, Kentucky, by way of comparison.

However, when I checked Patch traffic on the Compete.com service, Groupon was in the 29 million unique range, LivingSocial was 14 million, and Patch.com was 5.5 million. Compete reports that traffic for Cuyahoga Falls Patch is climbing, hitting 8,000 unique visitors in April 2011 up from about 700 uniques in December 2010. The growth of the service is excellent, especially at a time when many websites have been adversely affected by Google’s anti-spam activities called Panda.

Details about Patch Local are sketchy. Some broad outlines of the service may be discerned in the information leaks surfacing in the Internet media.

Patch wants a piece of the advertising revenue in certain cities. Like Cuyahoga Falls, Patch wants to capture some of the advertising dollars flowing to hard copy newspapers service cities like New Canaan, Connecticut. In the city, BNet reported that there is New Canaan Patch, the New Canaan Advertiser, and a weekly Hearst paper, New Canaan News. Patch, not surprisingly has the AOL.com online brand and a staff of Twitter savvy professionals plus and a motivated president, Tim Armstrong, a former Google executive.

Patch’s angle may be a lower cost, lower risk alternative to Groupon. After fees, merchants using Groupon have to cover the customers from what is 25 to 30 percent of the regular price of the product or service. Groupon has been attracting some negative feedback when a poorly conceived coupon promotion creates a money losing situation for an advertiser. Patch and its partner American Express may pursue small businesses with combination offers. A joint promotion to American Express card holders and the AOL online user community could be an angle that puts traditional media and newcomers like TryItLocal.com under pressure. A price war could make online local advertiser a bargain for merchants who have an appetite for new media marketing.

AOL has played a role in online communities since its inception. I recall attending a conference at which AOL and CompuServe executives discussed the vibrancy of forums and discussion groups. The Facebook DNA, in my opinion, can trace its heritage to the early and largely unmoderated forums on these early online services. Unlike companies that talk social like Groupon and LivingSocial, AOL has deep social technology roots and quite a bit of experience in leveraging its customer base.

The Patch Deals FAQ provides additional early stage details about the forthcoming AOL service. Keep in mind that with a release date months in the future, the exact shape of the service at launch can change significantly. AOL Patch’s key differentiator is that advertisers will not have to make an upfront payment, obviously an alternative to the Groupon method of getting the merchant to pay upfront fees. AOL makes clear that it will promote the service “a couple of different ways: “via e-mail, through Patch’s daily and weekly newsletters, and thorough social media such as Facebook and Twitter.”

When Patch becomes available, should a local business consider advertising on the service? Will Patch pose a challenge to local newspapers and information services from bloggers and commercial publishing operations? Will Patch be able to carve out a profitable niche in a very crowded sector?

These questions are difficult to answer. AOL needs a revenue win, and it may have the right combination of ingredients: A dash of Huff-Po, a chunk of Patch, and a smidgen of AOL. Might be a Top Chef recipe.

Stephen E. Arnold is a consultant. More information about his practice is available at www.arnoldit.com and in his blog at www.arnoldit.com/wordpress. His most recent book is The New Landscape of Enterprise Search. For information, visit http://arnoldit.com/wordpress/landscape/.