It seemed like a long-shot plan at the time but it might, just might, be working after all. The years-old restructuring project that is AOL
Back in black
Total revenue for AOL amounted to $531 million while net was nearly double that at $971 million. Uh, what? Well, nearly all of the profit -- $946 million, to be exact -- was because of a one-time sale of patents to IT powerhouse Microsoft
Taking the Microsoft deal out of the equation still leaves a net profit to the tune of around $25 million. That isn't half-bad for AOL, given that many of its quarters since being spun off from Time Warner
Always a media maven
Re-tuning a business is hard, expensive work, particularly for a firm that was once so dominant. Many of us crusty old-timers remember the Internet Wild West of the 1990s, when "broadband" was a distant dream and dial-up access the agonizing standard. In those frontier days, AOL was the Internet service provider much of America dialed in to.
Those salad days were never going to last, of course. Inevitably the telecom, cable, and satellite providers, with their wide pipes, took over the ISP market. Before that occurred, however, an AOL fattened by a rich share price bought Time Warner. That was the high-water mark of the Age of the Dot-Com. The stock prices of many big Internet names of the time justifiably collapsed after that. The two partners in AOL Time Warner, never a good and comfortable alliance, limped along in the combined entity before finally parting ways in 2009.
In retrospect, leaving the shareholder value-destroying misadventure of that firm aside, AOL's venture into media was a prescient move. The company was going to lose its grip of the ISP market sooner rather than later, so a shift into content was a practical survival strategy.
Applying the brakes
Skeptics of the shift remain numerous, not least because AOL's revenue has been caving since its glory days. Looking at only the past few years, the top line has dropped sharply. While still the leading half of AOL Time Warner, the firm took in $2.2 billion in 2007. That fell to $2.1 billion the following year then started to snowball; the annual decline in the metric amounted to $147 million from 2007 to 2008, then $347 million in the ensuing one-year period, then a scary $453 million.
So these recent results should help erase some of the skepticism. Fiscal 2011, while not a banner year for the company, at least saw a reversal of the top line free fall (revenue totaled $1.3 billion, a slight gain over 2010's number but a gain nonetheless). On a quarterly basis the road is still rocky; top line was barely more than in the previous quarter and $10 million-plus below that of Q2 2011. But the worst seems to be over.
Share the windfall
AOL's latest results are encouraging, and that one-time gain looks very, very pretty. It's particularly attractive to shareholders now that the firm's promised to return the proceeds to them. That $946 million equates to around $10.07 per share, or roughly 32% of the current stock price. No wonder the market's driven the shares to their highest level since the 2009 break from Time Warner.
It's also encouraging that AOL's dream to turn into a media butterfly is coming along. Media depends on advertising, of course, so it's good that ad revenues for the firm grew 6% year-on-year during the quarter (to $338 million).
This is, however, a big market -- to the tune of tens of billions of dollars per year -- and it's contested by heavyweights like Google
So AOL has its work cut out for it. Can it succeed? It's got a good portfolio (TechCrunch, The Huffington Post) and an appealing ad platform in the state-of-the-art Project Devil service. It might never reach the level of a Google, say, and it almost certainly won't scale the lofty heights it once enjoyed as a premium online brand. But it's been doing better than people have expected it to, and it probably has a few more upside surprises tucked in its sleeve.
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