Mass media communications company AOL Inc. (AOL, Financial) released its first-quarter numbers on Friday (May 8) before the bell and left investors and analysts spellbound while the stock also surged the most in the past 16 months after the earnings report was declared. Exceptional growth in the ad and search revenue was witnessed in the first quarter and the numbers clearly surprised the Street analysts as the top line beat their expectations. Let’s find out what were the major highlights of AOL’s first quarter of the fiscal year 2015.
Both revenue and earnings surge
Earnings for the quarter, barring certain one-time items, came in at $0.34 a share almost $0.02 a share higher than the Street estimates. Overall, revenue surged 7.2% year over year to $625.1 million surpassing the consensus estimate of $594.6 million.
The marketing efforts of the company for automation of the advertising segment chiefly contributed to this gain in revenue during the quarter. Interestingly, the company’s global advertising sales went up 12% year-over-year to $483.5 million at the end of the first quarter.
While AOL faces stiff competition from rivals such as Google (GOOG, Financial) and Facebook (FB, Financial), the company is taking brisk initiatives towards automation of the advertising segment through usage of highly powered machines for purchasing and selling advertisement space on the company’s websites such as TechCrunch and Huffington Post and on its online video service, AOL On. Just a month back, AOL unleashed a new technology termed ONE by AOL which is aimed to help marketers direct their money towards ad spaces that could in turn maximize their revenue.
In an interview with Bloomberg, CEO, Tim Armstrong, commented that the idea of automation of its ad technology is to generate “more data to the advertising, which makes the ads better and more effective, and consumers like them better…” It seems that this newly consolidated programmatic platform launched in April this year is a good strategy that has been taken to build the ad business of AOL going forward.
However, net income fell to $7 million, from $9.3 million reported a year ago. The net income fell due to currency translation headwinds and interest expense linked to convertible notes.
Ad and search revenue swells
On performing a segmental dissection, it is apparent that the AOL Properties division’s revenue dropped 4% to $130.5 million, while subscription and Internet service provider revenue also tripped 6% to $141.6 million. But the bright spots were the search ad segment which saw revenue surge 19% to $116.3 million year-over-year and the ad revenue from third party properties segment that saw revenue rising to $231.6 million, from $194.7 million reported a year earlier.
Overall the search revenue grew around 28% in the quarter, pushing the Brand Group revenue higher by 8% to $193.4 million, when compared on a year-over-year basis. AOL Platforms revenue rose 21% to $279.8 million.
Mr. Armstrong shared during the earnings presentation: “AOL grew its consumer base strongly and saw continued strength in video, mobile and programmatic advertising, while we also updated the structure and capabilities of the company… AOL continues to grow in strength and we are on a mission to scale the first Media Technology company of the internet and mobile age…”
Concluding note
The first quarter’s numbers stay testimony to the fact that AOL reported a solid quarter and that the marketing efforts to counter the moves of its rivals in the ad space has started to pay off. Investors should keep an eye on the upcoming quarter results for better understanding on how the new strategies being taken by the mass media company have begun to bear fruit.
