By Dow Jones Business News,
August 06, 2014, 08:25:00 AM EDT
AOL Inc. said its second-quarter profit edged down 1%, as higher costs offset a 20% increase in global advertising
revenue at the online content and ad- technology firm.
The results suggested that AOL Chief Executive Tim Armstrong's big bet on "programmatic" automated advertising-sales
technology appears to be paying off.
AOL's earnings were bolstered in large part by the company's "platforms" business--that is, AOL's collection of tools
and services aimed at helping Web publishers sell ads. AOL reported that its "third party"--non-AOL--platform revenue
surged 60% year-over-year.
While much of that growth was due to the inclusion of Adap.tv, the Web video-ad-technology company that AOL acquired
last year, third-party platform revenue still grew a healthy 20% excluding Adap.tv.
On a conference call with analysts, Mr. Armstrong declared that AOL was "taking share" in the programmatic market,
which is dominated by Google Inc. as well as a range of other ad-technology firms.
"We want to be at the center of the mechanization of the global advertising business," he said.
AOL's profit ticked lower to $28.2 million, or 34 cents a share, from $28.5 million, or 35 cents a share, a year
earlier. Its cost of revenue increased $58 million from a year earlier, essentially the revenue it has to split with Web
publishers who are using its services for ad sales.
Even so, the results were better than analysts expected.
If there was any area of concern for AOL in second quarter, it may have been display advertising on AOL's own
properties, which slipped by 1% compared with the year earlier period. Some in the ad industry have wondered whether
AOL's focus on programmatic could cannibalize AOL's premium ad sales efforts, which rely on a human sales force.
But AOL said that display revenue was actually up 9% year-over-year excluding its Patch local-news business and other
"shuttered or de-emphasized brands." AOL sold a majority stake in Patch earlier this year.
During the earnings call, Mr. Armstrong repeatedly emphasized that AOL was seeing ad-inventory pricing growth in the
double-digit range. "We are back to industry competitive growth," he said. That has come from a focus on "higher priced
advertising," he said.
Internet-access subscription revenue slid 7% to $155.1 million, as the company saw a 9% decline in subscribers during
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