AOL’s stock is down 11 percent following the announcement of its rocky outlook for 2015.
In an earnings call this morning, president and CEO Tim Armstrong said there would be layoffs in the months ahead as the company restructures some of its content offerings. AOL will be incorporating two of its blogs, the Apple-focused TUAW and gaming site Joystiq, into its tech outlet Engadget.
It will also overhaul its advertising arm as it continues to shift focus to programmatic advertising.
The company noted fourth quarter earnings that missed on revenue expectations, but beat earnings estimates. Analysts predicted revenues of $722 million, but AOL only brought in $710 million this quarter. Earnings per share were estimated to come in around $0.72 per share, and AOL delivered, with $0.73 per share.
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Video ads offer hope
In another bright spot, global ad revenues were up 8 percent from last quarter, for a total of $562 million.
That is largely due to AOL’s investment in video advertising — an area CEO Tim Armstrong has long touted as the future of digital marketing. To build out the company’s video business, AOL scooped up Adap.TV in 2013. The acquisition is now helping to drive revenue collected on third party sites. AOL’s recent purchase of Vidible, a video marketing platform that allows content providers to monetize their digital media, will also aid this mission.
Plus, AOL has spent a lot of time and money developing video content on its web publications like Huffington Post to monetize the sites that it owns and operates. It plans to continue that investment in video on other sites like TechCrunch.
“In both cases, they’re positioning themselves as a platform for advertisers today and advertisers going forward, as video and programmatic sales on television continue to grow,” said Susan Bidel, an analyst with Forrester Research.
So what has investors so worried? Perhaps it was when Armstrong mentioned something about “low-to-mid-single digit growth” in the quarters ahead.
Worse before it’s better
AOL is hunkering down to develop forward-looking ad products. To do that, it’s killing off some of its display ad offerings. We’ll see that come as part of the layoffs the company forecasted for 2015. When that happens, revenues are going to take a hit, and that’s where investors start to get upset.
But, in order for AOL to capture a bigger slice of the digital ad market, it needs to be able to compete with other programmatic ad platforms offered by major competitors like Yahoo and Google. And while Google currently has the largest slice of the pie, Bidel think there’s room for AOL to grow.
“Most publishers are interested in and are currently working with more than one platform, and as long as that’s the case, then AOL has a chance to compete in that market,” Bidel said.
But only if they can provide advertisers and content providers with the right tools. And to do that, the company is going to need to take several quarters to build up its offerings.
