AOL Down 24% As Q1 Earnings Beat On Sales Of $583M But Miss EPS On $22M Of Charges

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AOL is trading down almost 24% on the day that it reported its first quarter earnings. It posted revenue of $583.1 million but had startlingly low earnings per share of $0.11 and a 66% drop in net income to $8.7 million. Advertising revenues, the bread and butter of AOL’s business, were $433 million, up 16% compared to a year ago.

The top-line numbers beat analyst estimates on sales but EPS was weighed down on restructuring costs of $12 million and a $10 million asset impairment charge. AOL says that without the $22 million in one-off charges, its adjusted EPS would have been $0.34.

In addition, there was also a $10 million shortfall in display ad revenues because of “shuttered or de-emphasized brands,” including Patch, its failed hyperlocal effort that has now been spun out to another company run by Hale Global.

But even adjusted EPS fell short of estimates. Analysts had been expecting earnings per share of $0.45 on sales of $577 million. It also missed on another metric it uses to measure its operating performance, adjusted OIBDA, which was $107 million, $5 million below expectations of $112 million. That was up by only 2%.

(OIBDA is defined as “operating income before depreciation and amortization excluding the impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, noncash asset impairments and write-offs and special items.” In other words, one-off costs like Patch are not included.)

The company (which owns TechCrunch) is playing down some of the negatives by trying to point out its continuing growth — the company was in decline for years but has been on a growth roll for the past several quarters, and overall revenues this quarter were up 8% compared to a year ago.

“Q1 marks the 5th consecutive quarter of consumer, revenue and Adjusted OIBDA growth,” said Tim Armstrong, AOL Chairman and CEO, in a statement. “AOL’s investment in global media and technology platforms is allowing AOL to compete on a global scale.”

Last quarter saw a nice upswing in ad revenues across AOL properties, and this past quarter also saw growth but less so. Within the $433 million AOL made in ad revenues, display ads were down by 3% to $136 million, and search was down by 1% to $97.6 million.

Indeed, with competition against huge players like Google and Facebook in the game of scale that is online advertising, it is not really a surprise that AOL has been shifting its focus more on ad tech. The thinking here is to go after revenues from helping brands and others make smarter (if not potentially more) choices on advertising and marketing spend, thereby increasing margins on what does get invested.

The latest development there was the acquisition yesterday of Convertro for up to $101 million to improve marketing analytics. In the past quarter it also launched a new, consolidated platform called AOL One, as a one-stop programmatic shop for ad buyers.

It’s no surprise that this is where AOL is making the most investment at the moment: the AOL Platforms division, where Convertro, One and other ad efforts sit, was up 43% in revenues in this last quarter. It accounted for $230.8 million of revenue, up a whopping 43% compared to a year ago, and the only division that saw revenue growth. However, it is also loss-making at the moment, with OIBDA of $3.5 million, down 40%.

In other words, a promising area, but still with a lot of pain built into it with the expectation of rewards down the line.

Adap.tv is making a significant contribution to the growth in Platforms. Without it sales would have grown by only 19%. AOL noted that third-party platform revenue is also a strong driver.

Going through AOL’s other business segments, incredibly, Membership operations — which include things like dial-up customers — remain a large part of the company’s business, even though they continue to shrink.

Revenues in the Membership Group were down by 7% to $196.3 million, making it the second-highest revenue generator after Platforms. But with Platforms still being a loss-maker, Membership is AOL’s most cost-effective business, with OIBDA of $138 million, down six percent but still effectively driving all of the company’s OIBDA.

Continuing through the different segments, the Brand Group (where sites like Huffington Post, TechCrunch and Engadget sit alongside AOL.com and other properties), brought in $178.8 million in revenue, but that was down six percent on a year ago. It swung to a positive OIBDA of $1.8 million versus a negative OIBDA of $4.9 million a year ago.

AOL says that part of the reason for the decline in the Brand group was because of the absence of revenue from Patch, as well as other brands that are no longer operational compared to a year ago. But it also pointed out that without those, like-for-like sales would have been flat.

Article updated to note that first mention of revenues was not earnings.