Update: AOL Says Its Hyperlocal News Network Patch Is Not Closing

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Update: AOL says implications that Patch is closing down are inaccurate. A New York Times article stated that AOL is reportedly planning to “dismantle Patch or perhaps sell it off to various partners,” even though CEO Tim Armstrong “cannot quite admit that it is over.” In response, a spokesman for the company told TechCrunch that it stands behind what CEO Tim Armstrong said at a Dec. 11 UBS conference (PDF link) and in AOL’s last three earnings calls about Patch. (Like Patch, TechCrunch is also owned by AOL). 

In an attempt to reassure employees, Patch COO Leigh Zarelli Lewis sent out an internal memo (obtained by Business Insider) stating that “We are continuing to talk with potential partners about Patch and there is no change in course or direction from what we have discussed as a team.” The report in the New York Times and AOL’s denial of closure speak to the ongoing saga around Patch and how from the outside–and even to employees–there appears to be a lot of indecision still at play, leaving Patch’s remaining workforce in suspense.

“I would love it if someone would tell us whether we’ll have jobs on Jan. 1,” one current Patch employee told TechCrunch.

At the UBS event, Armstrong said that the company is looking at ways to save the hyper-local news service.

Armstrong called Patch “an asset with optionality” at the UBS conference and that the network of news sites might be able to remain afloat thanks to an impending partnership with an undisclosed company. His claims were mocked by media observers (Mediabistro said his remarks were “Office Space-worthy” and that Armstrong should have said “option with assanality.”) Patch has struggled to achieve profitability for years and questions about its future intensified after a massive round of layoffs this summer.

Armstrong has nurtured the site as a pet project since launching it in 2007 while he was still at Google. AOL bought Patch in 2009 after Armstrong became its CEO. (TechCrunch is also part of AOL’s media portfolio).

(The day before the UBS event, Patch co-founder and AOL exec Jon Brod announced that he was leaving the company early next year. Brod stepped down as Patch CEO in spring and was most recently heading AOL Ventures.)

During the conference, Armstrong also defended Patch by saying that it has “more digital traffic than a lot of traditional players have,” echoing statements made by CFO Karen Dkystra during AOL’s conference call last month.

Dkystra hinted that the company was going to take several measures to save Patch, including cost-cutting in its “lowest-performing areas,” as well as “product enhancements.”

Despite AOL’s promises to save Patch, Dkystra’s statements were yet more signs that Patch is struggling to achieve profitability despite a large round of layoffs that began in August and resulted in about 400 people, or 40% of Patch’s workforce, losing their jobs.

In August, TechCrunch’s Alex Wilhelm ran estimates on Patch’s revenue that showed the site still had a shot at reaching profitability this year after its mass layoffs. Alex wrote that “assuming full layoffs, $75,000 per day in average sales not discounting for weekends, and strong ‘other’ income that AOL has repeatedly mentioned as possible, Patch could make financial sense.”

At the same time, there are signals that Patch is struggling to hit those targets. Memos leaked by a Patch staffer revealed that Jim Lipuma, head of U.S. ad sales for Patch, said that the site “amassed [its] worst results of the year” over five days in August. Lipuma added “we had a $36K day yesterday, when we needed to be having $100K+ days. I understand why yesterday happened, but we cannot settle for days like this going forward.”

Patch’s failure to thrive has cost AOL an estimated $300 million (though the company claims that figure is closer to $200 million). Armstrong’s reputation has also taken a blow, most notably when he impulsively fired Patch’s creative director Abel Lenz for taking a photo at a meeting, an “emotional response” that he later apologized for. Armstrong’s attachment to Patch also helped trigger a proxy fight in 2012, when hedge fund Starboard Value L.P ran for three seats on AOL’s board while questioning Patch’s viability.

Armstrong won the proxy battle, but it was one of the factors that led to AOL selling $1.1 billion patents to Microsoft in April 2012 in order to placate disgruntled investors. In an earnings call after the patents sale, Armstrong told shareholders that he planned to make Patch profitable by the end of 2013.