AOL: Q4 Advertising By The Numbers; Growth Not Expected Until Q2
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AOL (NYSE: TWX) expects flat advertising revenue this quarter and Time Warner had to explain that during its earnings call, along with a lot of disquieting advertising numbers from 4Q07. Time Warner CFO John Martin provided most of the details in his prepared remarks and more came up during the Q&A.
Advertising revenues were up 10 percent year over year, to $620 million. Display advertising on AOL’s owned-and-operated network was up a mere 3 percent to $252 million. Third-party network revenue rose nearly 30 percent, to nearly $200 million. TWX invested $900 million in assembling Platform A last year; nearly half the growth in third-party advertising in Q4 came from acquisitions but but organic growth is strong.
—Paid search: AOL made $171 million from paid search in Q407, only 1 percent higher than the previous year. Paid search in Europe—20 percent of paid search revenue— declined by $8 million because AOL no longer receives guaranteed payments from Google (NSDQ: GOOG) for European search. U.S. paid search was up “mid-single digits” with AOL benefiting from positive pricing trends across the industry but experiencing lower use and lower click-thrus. More after the jump…
—Flat times ahead: Part of Martin’s explanation: “First, advertising demand is continuing to shift to third-party networks. This is an industry trend. It’s been ongoing and you can see this in the healthy growth rates in AOL’s third-party network. This has put some near-term pressure on CPMs, however, on the AOL O&O network and as a result, AOL has responded by adjusting its sales process and integrating more of its inventory with advertising.com and TACODA, both of which are important components of Platform A.” AOL also expects less income from major advertiser Apollo, which brought in $56 million in Q107.
But Martin said AOL expects advertising to grow as its integration efforts gel. Asked about that during the Q&A, Martin said they expect it to improve “beginning in the second quarter of this year. ... AOL is really focusing on building its leading display monetization platform and this is important because it has scale, it’s got the behavioral and context targeting capabilities and this is where we believe demand is going.”
—Behavioral, contextual starting to kick in: Martin: “... We’re only now beginning to apply behavioral and soon contextual technology to the inventory, so that should help over time improve the monetization as well. And it’s very, very early and in very small numbers, but we’ve seen some exciting and dramatic ramps in CPMs in certain areas.”
—Display advertising: Pricing pressure on non-premium; premium CPM pricing starting to come back. See the previous answer for why Martin is bullish about reversing the non-premium trend.
For more details, see the transcript on SeekingAlpha.com or listen to the call.
Posted In: Advertising, Money, Earnings, Companies, AOL, Time Warner
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