AOL Reports Lower Earnings for 2011

Rising costs, lower subscription revenue at work

AOL closed a turbulent 2011 with earnings plunging as its costs rose and subscription revenue fell.

AOL’s fourth-quarter revenue fell by 3 percent from the previous year to $576.8 million. Year-over-year net income plummeted 66 percent to $22.8 million, with diluted earnings per share down 62 percent to $0.23. The company's cost of revenue grew in a year in which it acquired The Huffington Post.

AOL’s subscription revenue—which provides almost all of AOL's non-ad revenue—fell by 18 percent year over year to $194.6 million for the quarter. The company ended 2011 with 3.3 million U.S. subscribers, down 15 percent from the year-earlier quarter. 

AOL’s advertising revenue continued its upward trend, though, rising 10 percent year over year to $363.8 million in the fourth quarter, the third consecutive period of year-over-year growth. Revenue from display advertising rose 15 percent to $170.6 million, but revenue from search and contextual advertising declined 8 percent to $88.4 million. AOL’s third-party advertising network generated $104.8 million in revenue, a 20 percent increase from the prior year.

Tim Armstrong, chairman and CEO of AOL, said during an earnings call that he saw the company growing by meeting advertiser demand for "clear, concise services at scale with high engagement" and moving away from an auction-based model. He said he expected a divide between premium and nonpremium display advertising to occur over the next 24 months, with an increase in online brand engagement efforts and a consolidation in the ad network and exchange space.

This quarter AOL will begin offering holding companies a white-label, enterprise version of its Project Devil ad platform, Armstrong said during a conference call with reporters. 

“We would like brands to become publishers of information and really change advertising into content, still running in the Project Devil ad space,” he said. “But we believe most of the clients in the world through their agencies could actually extend the amount of content they run in advertising.”

Armstrong said AOL also expects to create an enterprise version of the social dashboard that was announced last fall and tracks an ad's reach across AOL and non-AOL properties.