Over the past few months, AOL (NYSE: AOL) CEO Tim Armstrong has said that display revenues will turn around by mid-year, an implicit warning that the segment would still be in a dismal state for the first half. In that sense, the 14 percent decline in display revenues to $151 million in Q4 then isn’t much of a surprise and as in past quarters, lower expectations actually make the situation appear slightly better than what was expected. Though it’s not likely to make investors any less wary about the company’s future.
AOL Sells Brightcove Stake: One interesting tidbit tucked into the release: AOL sold its shares in online video service Brightcove for $17 million in cash in Q4, showing that amid all its buying lately, the company is looking for ancillary savings wherever it can. The stake in Brightcove stems from a $16.2 million round the video company raised back in 2005 from AOL, IAC (NSDQ: IACI) and Hearst.
Rebuilding: AOL is still in rebuilding mode, Armstrong has said, adding that it will take time to make a “sick company healthy” again. The company did point to signs of progress on its content strategy, which is heavily invested in video and local content. Citing December comScore (NSDQ: SCOR) numbers, the company said that video streams were up 106 percent to 406 million and the number of viewers rose 84 percent to 49 million.
Meanwhile, the cornerstone of its local content play, the Patch network, added 559 was in 775 towns, the company said (incidentally, the word “town” is also being used as a metaphor for AOL’s other editorial departments. For example, there’s a “tech town” for technology content, “sports town” for sports, and other “towns” that represent other vertical categories).
As AOL tries to get the content mix right — earlier this month, it said it was outsourcing its popular FanHouse sports blog to The Sporting News, and would be handing over content duties for health to EverydayHealth, while Move.com would manage its real estate channel — it’s continuing to struggle to get its advertising house in order.
Subscriptions: One of the problems AOL has faced over the past few years was a reliance on subscription revenues related to its original internet access business. The company has faced inexorable declines in subscriptions and Q4 was no exception. Subscription revenue was down 23 percent in Q4. Interestingly, AOL did note some positive news in that segment, in the form of a “favorable resolution of a legal dispute over revenue related to certain customers” that added $5.4 million to the company’s revenues.
Advertising: The declines were, as usual, across the board in search and contextual, display and Third Party Network revenue. Search and contextual revenue fell 34 percent to to $96.4 million. That was attributed to fewer domestic queries, which in turn is tied to fewer subscribers.
On the display front, AOL’s “premium” ad dollars fell as it continued to reduce inventory in a bid to make its pages more attractive to users — ones who aren’t subscribers. Secondly, the sales force restructuring that began in Q110 was also a factor. International display dollars plunged 53 percent to $11.5 million, the result of a complete overhaul of the European business. In addition, the international declines are related to the loss of revenue from the sale of both Bebo and ICQ.
To put the display numbers in context — and show what AOL has to contend with — eMarketer pulled some numbers on the general state of that ad segment. In general, the U.S. online display ad market grew 17 percent to $8.88 billion in 2010, up from $7.58 billion in 2009, eMarketer says.
Meanwhile, AOL’s share of online display revenues shrunk to 5.3 percent last year, down from 6.8 percent in ’09. In contrast, Facebook accounted for 13.6 percent of display revenues in 2010, up from 7.3 percent the year before that. Google (NSDQ: GOOG) accounted for 9.6 percent of total U.S. display ad revenues last year, up from 3.6 year-over-year. Although Yahoo (NSDQ: YHOO) lost display share in 2010, accounting for 16.2 percent of display revenues, dropping from 16.5 percent in ’09, it’s still clearly the big display powerhouse.
Acquisitions: Along with Google, AOL has been intensely acquisitive lately. The earnings release provided a few numbers of what was spent on all the various deal-making that went on in that three-month period. The December purchases of display ad tool Pictela and the separate social identity site About.me cost AOL $31.4 million collectively. The recent acquisition of Denmark’s goviral A/S was priced at $74.1 million.
As a result of the shopping spree — as well as the ramping up of Patch — operating expenses grew by $32.3 million versus Q310. Still, AOL said it had reduced restructuring costs in general, suggesting that process was almost over.