Peter Kafka

Recent Posts by Peter Kafka

Tim Armstrong on AOL’s Turnaround: Wait Until Next Year

Money is flowing back into Internet advertising, but not at AOL: Tim Armstrong’s company saw ad revenue drop 27 percent in the last quarter.

The good news for Armstrong is that he has now conditioned Wall Street to expect these drops, as he works on a turnaround effort that began in the spring of 2009.

And because some of the ad drop is “self-inflicted”–the result of AOL’s decision to focus on quantity instead of quality as it revamps its ad team and strategy–it’s possible to add a more positive spin to the data. For instance: AOL’s domestic display ads, where the company has the most control of results, are only down 8 percent.

Armstrong’s vision is that eventually his company will once again be one of the industry’s top players: “AOL’s goal is to be competitive with Google and Facebook,” he said during his earnings call this morning. “We’re not trying to be competitive with people farther down the chain.”

Okay. But when? Today Armstrong announced that he expects AOL’s ad sales to mirror the broader industry’s by the second half of 2011. That will be more than two years after he took over.

Then again, you can argue that AOL languished within Time Warner’s grasp for the past 10 years. By comparison, that’s a reasonably speedy turnaround–and bear in mind that any Internet turnaround is a very rare thing.

So here’s the question: Will Wall Street wait to find out if he can do it?


A quick first look at AOL’s Q3: Revenue of $563 million and adjusted earnings of $0.93 a share. The Street was looking for $557 million and adjusted earnings of $0.50 per share.

AOL’s ad slump continues, though Wall Street expected that: Ad revenue was down 27 percent this quarter, and display ads were down 14 percent. Domestic display was down 8 percent.

Things to look for in the company’s financials and during its conference call this morning: Most important, an update on its attempt to turn around its ad sales unit, which has been a mess–analysts are still expecting AOL to post a substantial ad sales decline this quarter; additional news about the company’s renewed search pact with Google; and perhaps insight into Tim Armstrong’s M&A plans following a shopping spree that included TechCrunch and 5Min.

AOL says it spent $97 million on TechCrunch, 5Min and Thing Labs, and that it could spend up to $23 million more on earnouts/retention bonuses over the next three years. $65 million of that total went to 5Min.

Here’s what AOL’s ad story looks like, quarter by quarter:

And here’s what AOL wants you to think about as you evaluate its ad decline–moves it has made on its own that will cut down sales in the short term, like its decision to more or less shutter its European operations.

I’ll update with notes following the company’s 8 am earnings call.