A few months back AOL (
) launched the 'Project Devil', which was an advertising
product to reduce visual clutter on web pages and enhance ad space
functionality in order to drive higher user engagements levels (see
Success of Project Devil Could Create 13% Upside to
). In the recently announced Q1 2011 earnings, AOL provided some
data on Project Devil, which showed higher engagement levels for
AOL ads. In spite of all this, AOL's struggles in the online
advertising market against competitors Google (
), Facebook and Yahoo (
), and initiatives like Devil hope to improve this.
We currently maintain
$22.23 price estimate for AOL stock
, which is about 18% above market price.
Better Performance of Devil Ads
AOL's revenues declined by around 12% in Q1 2011 compared to the
same quarter last year. The company mentioned that the Devil ads
performance are substantially better than average Internet ads. The
click-through rates and the time spent by users on Devil ads are
substantially higher than the industry average.
Here is what the management has to comment on Devil ads'
On the engagement side, the engagement rates are basically
interactions, roughly at about 6.4 times the industry benchmark.
So, we are seeing interaction rates with Devil ads above 10%. The
industry benchmark for engagement is about 1.5%, so meaningfully
better results. The interaction rate, meaning how often people
actually touch the ad itself, or use one of the individual
components and click all the way through, is substantially
better. It's about 1.9 times the industry rate. And then the
thing that is really meaningful is the time that people actually
spend with the ad. So roughly people spend about 14 seconds with
an ad if they are going to engage in it, on average, on the
Internet. They spend about 47 seconds with a Devil ad, so it's
3.4 times the industry average.
Project Devil has been implemented on a very small scale so far.
In the above chart, the revenue per page view metric benefits from
higher ad click through rates and higher time spent by users.
Assuming AOL rolls the Devil ads out on a large scale, we expect
this metric could benefit leading to upside to our estimates.
See our complete analysis for AOL