AOL Turns In Solid Q1 Revenue, Driven By Its Programmatic And Video Stack

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aol-q1-sexy"Mechanization," "piping," and "programmatic" are the keywords at AOL these days as the company puts the pedal down on its ad tech plans.

One day after scooping up multitouch attribution vendor Convertro for $101 million, AOL revealed revenue from the company's ad platform business grew 55% during the first quarter 2014 to $186 million, despite a 3% decline in global display revenue and a 2% decline in AOL properties revenue. Adap.tv appears to have delivered a special boost, as AOL noted the platform growth was 18% when the video buying stack was excluded.

AOL's combined programmatic products – including Adap.tv, AdLearn Open Platform (AOP) and AOL Marketplace  grew at over 100% year over year, Armstrong said. Mobile also grew by triple digits year over year.

And, as part of its efforts to accelerate sales of its ad tech product suite, AOL has created an enterprise sales organization to focus on pitching its unified ONE by AOL stack into agencies and advertisers.

"Advertisers are increasingly coming to AOL to simplify the planning buying analyzing and optimizing their advertising campaigns," Armstrong told investors on the company's earnings call Wednesday. "What we think is sexy is building the foundational platforms that the industry is going to ride on for the next couple decades."

Armstrong said he believes that within about two years, 70% of all ad spending will be programmatic, and 30% will channel through direct partnerships with content companies. "Today it's flip-flopped the opposite," he said. To capture as much of that 70% as possible, he said, "We are mechanizing media and advertising and our strategy is narrowing based on where we see significant opportunities."

Later in the earnings call, the narrowing theme came up again. "We have narrowed our investment and time on these (content) brands to platform advantages."

That means AOL will likely not seek to aggressively buy or build content brands as it did during the Tim Armstrong's honeymoon years, with Patch, HuffingtonPost and TechCrunch. Rather its content platform investments will be around things like Gravity, the content and ads startup AOL bought in Januar. Armstrong believes Gravity has an opportunity to stir up the turbid CMS software category.

A few additional highlights from the earnings release:

  • "Global advertising revenue grew 16% year over year. 55% growth in Third Party Platform revenue driven by growth in the sale of premium formats across AOL’s programmatic platform and by the inclusion of revenue from Adap.tv. Third Party Platform Revenue grew 18% excluding Adap.tv.
  • 3% decline in global display revenue primarily due to the absence in Q1’14 of approximately $10 million in revenue from shuttered or de-emphasized brands, including the disposition of Patch. Excluding these impacts, display grew 4% driven by improved overall inventory pricing.
  • 1% decline in global search revenue driven by a decline in AOL core search queries, partially offset by increased queries from search marketing related efforts."

Despite the robust revenue growth, AOL missed its bottom-line guidance and profit fell. Its stock was trading down 12% as of midmorning.

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