For the first time in eight years, AOL, Inc. (NYSE:AOL) reported overall growth in revenue. Helping the company behind the iconic “you’ve got mail” message log a profit was a gain from an asset sale.
Net income jumped 57% in Q4 2012, despite lower profits from its core businesses. A 13% increase in ad sales offset a 10% decrease in its internet access subscription revenue. Total revenue rose 3.9% to $599.5 million, beating Wall Street estimates of $574 million.
Shares spiked some 7% following the results, a nod of confidence that CEO Tim Armstrong’s tactics of morphing the one-time strictly internet company into a digital media company powered by ads is actually working.
But before you consider putting AOL, Inc. (NYSE:AOL) in your portfolio, it would be prudent to look deep into the results.
Yes, the devil’s in the details.
Operation income, before depreciation and amortization, slipped 7%. AOL, Inc. (NYSE:AOL)’s media properties, including the Huffington Post and Patch, slumped 34% in earnings before interest, taxes, depreciation and amortization (EBITDA), although it did kick in a tepid 4% in revenue growth for the quarter. Meanwhile, global display advertising dipped 0.5%.
The real drag appears to be Patch, the local news network that compromises a large part of AOL’s content business. The segment fell drastically short of AOL’s revenue target for the year. Armstrong boasted some six months ago that Patch’s 900-plus sites would rake in $40-$50 million for all of 2012. The actual tally was $34 million.
Superstom Sandy was blamed for the shortfall. We’ll see soon enough if the devastating hurricane was the true culprit behind Patch’s underperformace and if that can be patched.
Armstrong vows Patch will achieve run-rate profitability by Q4 of 2013, as AOL aggressively moves to woo regional advertisers, which is a shift from the local and national advertisers it has been vying for. Also planned are new partnerships with metro newspapers and television stations, both of which have slashed suburb coverage in favor of more worldly news. While doting parents believe little Johnny and Suzie’s home run and awards merit front page news, here’s a bulletin—it doesn’t and it won’t hit the presses.
But what has made front page news in a bevy of newspapers and on a bounty of business sites were fourth quarter earnings from Yahoo! Inc. (NASDAQ:YHOO). The company reported only a modest revenue increase of 4% year over year to $1.22 billion. But Yahoo!’s future has many yelling “yippee!”