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 ) 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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