AOL Q3 Beats The Street On Sales Of $626.8M, Falls Short On Income Of $121.8M

AOL (owner of TechCrunch) this morning reported its earnings for Q3, a mixed result that saw it beating estimates on sales but only matching on earnings, and missing on operating income (OIBDA) as the company continues with its turnaround strategy based around more savvy ad technology in the face of Google domination of market share, and display sales, and works through sales declines as a result of shuttered brands like Patch. AOL Platforms, where its ad tech business resides, was actually the only division that saw a rise in revenues over a year ago, up 44 percent.

The company reported revenues of $626.8 million, EPS of $0.52 and adjusted operating income of $121.8 million. Analysts were expecting sales of $623 million, EPS of $0.52 and OIBDA of $125 million.

Display sales on AOL properties actually slightly declined to $141.5 million from $141.9 million a year ago (AOL rounds that to 0% change). AOL says the flat number was impacted by the disappearance of $10 million in sales revenue as a result of “disposed or shuttered brands,” which includes Patch, the company’s ill-fated hyperlocal content and ad network which was “spun out” in January this year to Hale Global. Without the absence of that recurring revenue, it calculates that the remaining business actually grew 7 percent.

Search ads on AOL properties was up 3 percent to $97.9 million.

Meanwhile, third-party platform sales continue to grow fast, up 44 percent, and is by far its biggest sales stream now, at $215.1 million this quarter.

“In Q3, AOL continued its strong growth in consumer traffic, revenue and profitability across its portfolio of assets,” said Tim Armstrong, AOL Chairman and CEO, in a statement. “AOL is a leader in global content, video, mobile, and programmatic advertising and is positioned directly at the center of the most disruptive changes happening online and offline in culture and code.”

Indeed, breaking out how different segments performed, AOL is still seeing a big rise in AOL Platforms, which are up 44 percent to $271.9 million in revenues. Membership, which includes all that dial-up revenue that people like to joke about in our modern age of broadband and mobile Internet, is the second-highest segment at $196.7 million, although that was down by 4 percent over last year. The Brand Group was down by 3 percent.

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AOL took only a 0.9 percent share of the $120 billion worldwide digital ad market in 2013, according to eMarketer, and it is expected to maintain that same market share this year as digital ad spending globally increases to $140.7 billion.

AOL has been in the news of late in the context of Yahoo, and calls by some in the investment community for the two companies to combine forces into a single entity. No mention of that in the earnings report, of course, but it will be interesting to see whether anyone brings this up during the call later today.

Update: During this morning’s analyst call, executives expanded on the strategy behind shutting down some AOL properties — after all, the earnings report said that closing those properties was the reason for the company’s flat display revenue.

“We’re narrowing our focus to bigger brands — bigger global brands that can really scale and be open and make an impact in mobile,” said CFO Karen Dykstra. There will be a transition period with some “revenue disruption,” but ultimately, she said this will lead to “healthier margins and healthier revenue within the brand group.”

Asked how MapQuest fits into that strategy, Armstrong said it’s “a big asset,” though he added that it’s “a sneaker asset,” meaning that it’s valuable but doesn’t get a lot of outside attention.

Additional reporting by Anthony Ha