Some AOL (TWX) Properties Are Actually Strong
There's some good news buried within that pile of rubble known as AOL. For one thing, the Time Warner company is still throwing off nearly $1 billion of EBITDA per year, which is more than Microsoft, at least, can say for itself. For two, the company has gotten at least a couple of quarters of bad news out of the way (we hope), so it should be smooth sailing for a while. For three, it's not just Advertising.com, Tacoda, and the low-margin network business that are cranking along--some of AOL's content properties are, too.
For example:
Why does this matter? Because the majority of AOL's advertising revenue still comes from AOL properties, and the vast majority of AOL's advertising EBITDA comes from these properties (the network business may be sexier right now, but it's also lower margin). Some of AOL's properties--email, for example--are likely to wither away with the dial-up subscriber base. But some of the newer brands, and perhaps even some of the AOL brands, have a bright future, regardless of what happens to the subscriber base...
The Numbers
We need to do some additional research to figure out how much of AOL's owned-site advertising revenue is coming from its promising properties instead of its dying ones, but here are some round numbers:
In Q2, AOL generated a total of $522 million of ad revenue. Of this, $145 million (a bit more than a quarter) was network revenue--low-margin remnant advertising that appears on third-party properties. The rest, $377 million, or $1.5 billion annualized, came from AOL properties.
Of this $377 million, $156 million came from Search and $221 million came from Display. It's the Display revenue ($1 billion annualized) that's at issue here.
The Hot Properties
We'll explore some of these properties in depth in future posts. In the meantime, here are some snapshots of recent traffic trends, starting with Truveo, the video search portal:
See Also:
How To Fix AOL 1: Boost Morale
How To Fix AOL 2: Appoint One Content Head Instead of Three.
AOLers on How to Fix AOL
For example:
- AIM has stalled of late, but it is still the industry standard.
- TMZ, AOL's homegrown celebrity gossip site, continues to roar.
- Weblogs, the Jason Calacanis vehicle starring such sites as Peter Rojas's Engadget, is cranking.
- Truveo, the video search portal, which just announced a new international expansion, is not only growing--it's one of the few online video business models that we think will work.
- Bloggingstocks, a new AOL Money property, recently had traffic levels that passed Seeking Alpha, the largest independent investment blog.
- Mapquest has lost a ton of mindshare to Google and Microsoft and has been under-invested in, but it still has 50 million users a month (per Compete).
Why does this matter? Because the majority of AOL's advertising revenue still comes from AOL properties, and the vast majority of AOL's advertising EBITDA comes from these properties (the network business may be sexier right now, but it's also lower margin). Some of AOL's properties--email, for example--are likely to wither away with the dial-up subscriber base. But some of the newer brands, and perhaps even some of the AOL brands, have a bright future, regardless of what happens to the subscriber base...
The Numbers
We need to do some additional research to figure out how much of AOL's owned-site advertising revenue is coming from its promising properties instead of its dying ones, but here are some round numbers:
In Q2, AOL generated a total of $522 million of ad revenue. Of this, $145 million (a bit more than a quarter) was network revenue--low-margin remnant advertising that appears on third-party properties. The rest, $377 million, or $1.5 billion annualized, came from AOL properties.
Of this $377 million, $156 million came from Search and $221 million came from Display. It's the Display revenue ($1 billion annualized) that's at issue here.
The Hot Properties
We'll explore some of these properties in depth in future posts. In the meantime, here are some snapshots of recent traffic trends, starting with Truveo, the video search portal:
See Also:
How To Fix AOL 1: Boost Morale
How To Fix AOL 2: Appoint One Content Head Instead of Three.
AOLers on How to Fix AOL
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Couldn't agree more. I'm taking the long view as well; not just because of my normal bias against AOL, but because of reporting Mr. Blodget has done here in the past.
It was on this blog that I learned subs are 50% of AOL's overall revenue and are on a rapid quarterly decline. That leaves advertising to make up the shortfall, and the jury will be out on the overall success of that for a while. AIM views are falling, email use is falling, and like others have said here, AOL owns a lot of legacy acquisitions like Weblogs that may or may not do well into the future.
I think what AOL is losing now and going down the road is their cohesiveness--a clearly identifiable set of sites/products/apps that people will gravitate toward--but if they manage to make money without that, more power to them. But I don't see how they can. When the public can no longer put "a face" on what AOL is or does, I think people will tend to drift off to their competitors.
The current approach--ending the access business, offering free browser/portal software that has the taint of cancellation problems and software difficulties permanently attached to it, selling ads, running very un-AOL-like websites such as Weblogs, TMZ, BloggingStocks--is a scatter shot one, and might just confuse and disengage brand loyalists. Brand loyalists are the people who are making Google, Facebook, and Yahoo rich, so how AOL plans to make money without a similarly cohesive "face" to show to the world is anyone's guess, given their current state of affairs.
Especially interesting since it was a domain which didn't even resolve 18 months ago...
Troy
The AIM franchise is on a steady unchecked decline, and is the last shot for AOL to develop the next generation of users (their farm system). If Google ever gets through whatever is holding up their AIM/GTalk client, this share loss will increase even faster. Maybe the bigger threat to AIM in all of this is the emergence of in-Facebook IM solutions.
Weblogs, Blogging Stocks, Engadget are all carry-over wins from Jason Calacanis' playbook. What new editorial blog success has occurred since he left?
MapQuest is a great franchise, but the right comparison is mapping Google Maps growth against MapQuest over the last two years. That shows trouble brewing for the incumbent sooner vs. later.
TMZ is a wonderful win, but it is a Miller era win being held up as a poster child win of the "new era AOL" management team, just as advertising.com is - At some point, Ron and Randy need to show new wins done on their watch. Russia was great at revisionist history too, but they were no commercial success either.
Winamp was a good turnaround story, but that rapid growth seemed to stop about a year ago. With less subtle in-client ads showing up in the newest build just launched, will those gains be given back up by what may prove to be a fickle audience. iTunes growth outside of the US is very strong, so there is an easy switching play here...
Have there been some good things recently? Yes - the new mobile client that is about to launch looks like a really nice piece of work, and Tacoda was a really nice fill in acquisition. Letting Truveo start re-emphasizing its own brand may also be a win by the new team, but only time (and Comscore) will tell there, in our Hulu/Joost/et al world.
The challenge in all of this is evaluating the materiality of these new moves. This is still a company feeding on AOL client pageviews, in network ads, and AOL client search traffic. Maybe the question through all of this still needs to be: What will the third quarter paid sub story be? Keeping those old AOL client users still matter a ton to the new-AOL story, if they want to stem the 10% annual decline of time-on-site minutes that the AP story on the Comscore portal stats highlighted a few weeks ago.
I think there is financial upside near-term in using the Tacoda BT technology aggressively in AOL properties, but not sure what else I should be optimistic about going forward that will matter to the P&L. None of the stats mentioned here give me comfort at all.
Add up all the 'big winners' in the AOL portfolio - TMZ, Engadget, Truveo, and Bloggsingstocks - and you still only have growth of 4.3mm over the same period, with presumably much lower use than AIM.
The smart money still says that AOL is in trouble.