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Macquarie: AOL’s Display Business Has Put The Worst Behind It

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AOL’s consistent double-digit display declines over the past year have surely tried its investors’ patience, but a report from Macquarie Capital’s Ben Schachter says that the worst appears to be over and that the portal’s display business is “trending well.” The improvement suggests that AOL’s focus on larger display formats within its Project Devil initiative is showing some signs of paying off.

Still, AOL (NYSE: AOL) doesn’t appear to have been as aggressive as expected when it comes to running the larger formats on its homepage, which received a major revamp in October. In Schachter’s analysis, the Project Devil ads have been mostly used on AOL’s channels and other properties; he anticipates that Q2 will see an increase in the use of the larger takeovers on the homepage.

The analysis is part of Macquarie’s quarterly look at the homepage ads of AOL, Yahoo (NSDQ: YHOO), You Tube and MSN. For Q1, AOL had the most improvement of that quartet, but it also had been farthest behind in terms of growth.The company had the highest proportion of oversized/custom ad units at 26 percent of its inventory. AOL also had the highest percentage of purely brand-focused advertisers — which tends to indicate higher CPMs.

Looking at the companies’ performance through the prism of larger, premium ad formats doesn’t tell the whole story, of course — most online ad revenues come from direct marketing plays, not premium brand efforts. But the industry’s major players are hoping to change that, and so, looking at it from that perspective is a good way to measure the progress and ultimate sustainability of these businesses.

So with that in mind, Macquarie found YouTube’s homepage activity “somewhat disappointing” in the sense that it is able to diversify its advertising base with respect to its opening page. Again, a large percentage of traffic comes in through searching on its parent Google (NSDQ: GOOG), so homepage ads are probably not that big a deal to YouTube at this point.

Nevertheless, the reason for the reduced amount of homepage ads versus Q4 may be seasonal and it probably does not reflect any revenue weakness. Roughly 62 percent of YouTube’s homepage ads came from media companies in Q1, compared to 50 percent in 4Q. Aside from the lack of diversity among its advertisers on the opening page, more expensive custom ads units accounted for just 2 percent of all ads in 1Q vs. 21 percent the second half of Q4. More details in Macquerie’s report here.

One Response to “Macquarie: AOL’s Display Business Has Put The Worst Behind It”

  1. Rory Moulton

    The large format “Project Devil” ads are gorgeous. I want to see it succeed — anything to raise online CPMs and reduce the amount of terrible, clutterific online display ads.
    I keep a Project Devil double truck AOL ran in WSJ pinned to my office wall for inspiration. I’ll be pushing hard for a similar aesthetic when my company does another round of redesigns.
    (I am neither an AOL employee nor shareholder.)