Why AOL Inc. Shares Fell Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of AOL  (NYSE: AOL.DL  ) have lost about a quarter of their value today after the onetime pioneering ISP reported weak earnings for its fiscal first quarter this morning.

So what: AOL's quarterly revenue climbed 8% year over year to $583.3 million, but the company's adjusted earnings of $0.34 per share were far from its GAAP earnings of only $0.11, which was two thirds lower than the year-ago quarter's result due to various restructuring charges and other one-time costs. Analysts had been expecting $578 million in revenue, but $0.45 in EPS, so even AOL's adjusted bottom line was far below what Wall Street had wanted.

AOL's shift toward an ad-based revenue model continues apace, as total ad revenue was up 16% thanks to an increase of 55% in its third-party platform ad revenue. But its online network of sites recorded a 6% year-over-year drop in ad revenue and overall display-ad revenue fell 3% year over year. The company's haphazard spending spree to drive this shift continues as well, as AOL announced the $101 million acquisition of Convertro, an advertising-effectiveness analytics company in its earnings release.

Now what: For all its efforts, AOL continues to draw virtually all of its adjusted operating income from its subscriber base -- of the $107.3 million in adjusted pretax operating income it reported this quarter, more than 100% came from its subscriber segment. But there are now 9% fewer subscribers than there were a year ago. AOL's attempt to become a content portal has yet to prove profitable, and this latest earnings report only confirms the company's ongoing difficulties. I'd stay on the sidelines for this one.

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Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

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6/23/2015 8:00 PM
AOL.DL $0.00 Down +0.00 +0.00%
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