), which competes with Yahoo (
) and Google (
) in the display advertising market, is looking to increase user
engagement with display ads by introducing more interactive ads
according to a recent report in the
. Higher ad engagement can lead to higher prices paid by
advertisers for ads and thereby potentially boost AOL's
stock. We believe, however, that the impact to AOL's stock of
such a strategy will be small and the uptick in user engagement may
AOL's Declining Ad Revenue per Page
We estimate that display ads on AOL sites constitute around 32%
$25 Trefis price estimate for AOL's stock
. We estimate that AOL's ad revenue per page view has declined
declined from a little over $4 per 1,000 page views in 2007 to
about $3 in 2009, and we believe it could decline further to $2.65
per 1,000 page views by the end of Trefis forecast period.
Modest Upside from New Ads
AOL is introducing larger ads which will have special features
such as photo galleries, videos, updates from Facebook or Twitter,
and the ability to zoom in and out of a 3-D view of a
product. Such features can initially increase user attention
and engagement, leading to demand from advertisers for such
ads. Over the long-term, however, users are likely to develop
greater awareness of such ads and may become accustomed to avoiding
them, meaning that the user engagement boost from such a strategy
may be temporary.
Even if AOL's new strategy help to prevent AOL's revenue per
page from declining further (as we have forecast), the impact on
our estimate for AOL's stock would only be about +3%.
You can see
the complete $25 Trefis Price estimate for
AOL's stock here.