A year ago, AOL was a laughing stock. The one-time internet king was surviving on dial-up dollars from yokels and its media properties were a mess. After it sold its patent portfolio to Microsoft, it seemed only a matter of time until AOL dried up altogether.
Then something happened. The company’s revenues grew, its share price soared and CEO Tim Armstrong revealed a strategy to make AOL a media and advertising powerhouse. The company’s winning streak continued Friday morning as Wall Street greeted AOL’s latest earnings report with glee; the stock shot up another 12 percent when markets opened.
“We’ve walked through the the value of the turnaround and got to growth,” Armstrong said on a morning call with investors.
It’s too soon to say the company’s back on top but, for now, the results look like the real deal. Here’s why: as analysts fussed over AOL’s debacle with hyper-local site Patch and its dwindling dial-up business, the company quietly invested in state-of-the-art ad technology and rejigged AOL to inject new revenue streams. The most important of these are inside the AOL Networks group — a business unit that offers ad tech tools to publishers and advertising agencies that are still learning to navigate the world of automated ad buying. The Networks group grew 37 percent year-over-year and posted revenue of $183.5 million in Q4. (Total revenue for AOL in the quarter was up 4% from a year ago to $599 million; adjusted OIBDA income was down 7% to $123 million).
During this time, AOL has also become number two in online video thanks to products like HuffPo Live; this is significant because video is one of the most lucrative forms of online advertising. AOL now plans to draw on its fancy ad tools to create automated buying for its own video inventory while, at the same time, offering those tools to other companies who are still catching up on the video front.
Meanwhile, AOL’s media properties don’t look as dysfunctional as they did a year ago. Armstrong appears to have figured out how to manage the mercurial Arianna Huffington and, as for his pet project Patch, the hyper-local site is still losing money but he promises it will be profitable by the end of the year.
The bottom line is that AOL has three major revenue streams, all of which look viable. There are still danger signs, of course: AOL’s display ad business looks shaky and, as Henry Blodget points out, the company’s revenues may come from three streams but nearly all of the profit is still coming from the legacy subscriber businesses.
But, for now, investors are right to like what they see. People looking for 2013’s turnaround story should stop fussing over Yahoo — it’s AOL that is poised to be this year’s comeback kid.
Correction: an earlier version misstated the sale of AOL’s patents; this has been corrected to say the patents were sold to Microsoft (which in turn sold them to Facebook).
Disclosure: GigaOM distributes some video content through AOL.
(Image by Rob Hainer via Shutterstock)