AOL’s profits and total revenues were still negative in Q1, but at least CEO Tim Armstrong can say he made good on turning around display, as that revenue category grew 4 percent globally and 11 percent in the U.S. The last time AOL’s display revenues were positive was in Q407. However, total ad revenue remained flat, an indication that the company’s work is far from over.
While a 4 percent increase in display revenues may not be something to cheer about for most companies in the digital space, considering that rivals like Yahoo’s display grew 10 percent in Q1, after a series of quarters of declines, it’s enough for Armstrong to declare at least some vindication of his program to completely overhaul the company’s ad sales and content businesses since arriving at the company a little over two years ago.
“Today represents an important milestone in the turnaround of AOL (NYSE: AOL) as global display revenue grew for the first time since Q4 2007,” Armstrong said in a statement. “I am proud of the work completed thus far and we remain focused on accelerating our momentum through continued execution of our strategy to become the premier digital content company.”
The positive reversal of display’s declines come as AOL’s subscription revenues for its legacy dial-up service continue their inexorable decline, falling 24 percent in Q1. For years, even before Armstrong came into the picture, AOL had been assiduously trying to revamp its business model from that of an internet service provider to that of an advertising and media company. But all along, the real revenues coming into the company were coming from its original ISP business. The rise of broadband had put that operation in jeopardy, though that candle has been burning out slowly, giving AOL considerable time to remake itself.
Armstrong made significant changes to AOL’s approach to content and display, most notably spending $315 million to buy Huffington Post earlier this year, trying to shift AOL from focusing mostly direct response, traditional ad network to one that offers premium, large format ads for blue chip advertisers and publishers. Last night, AOL announced a deal with Hearst Magazines Digital Media to put its large scale display system — known as Project Devil — across the publisher’s web properties, starting with a campaign by Procter & Gamble.
Some other highlights from AOL’s Q1 release:
— International display fell 46 percent. AOL has restructured that ad sales structure even more drastically than in the U.S., and as these numbers show, a turnaround there appears a much longer way off. The company reduced its operations in Germany and France and is in the process of rebuilding.
— Search and contextual ad revenue dropped 21 percent.
— AOL Properties, which includes revenue from the companies various content sites, was off 8 percent.
— Third party network was down 19 percent
— AOL completed the purchase of goviral, a European video network, for $69.1 million in January. The Company also agreed to pay up to $22.6 million in earnouts over the next two years as long as pre-determined performance targets are hit.
Looking ahead, observers are still dubious about Armstrong’s efforts to completely turnaround the company’s display revenues by year’s end. According to eMarketer, AOL’s share of revenues in the $10.1 billion US display ad market is expected to decrease again this year to 4.4 percent, from 5.3 percent in 2010 and 6.8 percent in 2009. The researcher anticipates Yahoo!’s share of overall U.S. display ad revenues to rise 16.4 percent this year, though it won’t be enough to maintain its current lead over Facebook, whose share is expected to grow to 21.6 percent in 2011. eMarketer estimates Google’s share of overall U.S. display revenues to grow to 12.6 percent in 2011, up from 9.6 percent in 2010 and 3.6 percent in 2009.