So far, AOL's (NYSE: AOL) purchase of Adap.tv looks like a good one. The company delivered its fourth-quarter earnings Thursday morning with the headline "AOL Delivers Strongest Revenue Growth in a Decade." The 13% year-over-year growth led to revenue of $679 million, soundly beating the analysts consensus estimate of $655.8 million.
The growth contrasts with Yahoo!, which has taken a similar approach to AOL in becoming a media technology company and focusing on video. Both companies are battling video behemoth Google (GOOGL -0.90%) in the growing online video space.
A quick look at earnings
AOL's earnings results were certainly boosted by Adap.tv. The fourth quarter was the company's first full quarter after integrating the video advertising platform. As a result, the company saw a 63% increase in third party network advertising revenue. Note that AOL still saw 20% year-over-year growth in third party network revenue excluding Adap.tv, so it's not just growth by acquisition.
Elsewhere, growth was not nearly as impressive. Subscription revenue continued its decline, although it showed a record low 1.3% churn rate. Search revenue declined as well, reflecting the decrease in subscribers. Display ads grew 7%, however, as the biggest growth driver was "premium formats," i.e. video.
AOL's earnings results were not quite as positive as its revenue growth, but the company managed to eke out a small 5% increase in earnings per share due to its stock buybacks in the last 12 months. The reported $0.43 per share was below analysts expectations of $0.60, but adding back in one-time expenses and stock-based compensation, AOL earned $0.64 per share.
Now, the star of the show
Video is clearly the savior of AOL as it has allowed the company to increase its ad revenue significantly through premium pricing. In 2013, advertising revenue increase 13.7% year-over-year, and Adap.tv was only around for one-third of the year.
Online video advertising is a growing market, and ad-spending is shifting from television to the Internet as it gains popularity and content. According to eMarketer, online video ad spending is expected to increase from $4.12 billion in 2013 to $9.2 billion in 2017.
After the purchase of Adap.tv, AOL is the No. 1 video ad displayer over Google. Meanwhile, Yahoo!, which ranks fourth in the number of video viewers right behind AOL, doesn't even rank in the top 10 for the number of ads displayed.
Yahoo! has taken a content first approach. It hired Katie Couric last quarter to be its "gobal news anchor," and has been hosting her web-series "Katie's Take" since 2011. The company has also invested heavily in its own original video content, as well as non-video content. As a result, its monthly user rate climbed 20% year-over-year in the fourth quarter to 800 million.
Still, AOL's video growth outshines both Yahoo! and Google. In December, AOL's unique video viewers grew a whopping 79.6% year-over-year. Comparatively, Google increased its unique viewers 4% and Yahoo! grew its unique viewers a strong 12.6%. Clearly, AOL's investments are paying off handsomely, attracting new viewers to its platform.
Keep it rolling
AOL will need to continue investing in its products, however, as the competition is strong. Katie Couric's deal with Yahoo! is expected to begin this year, and Google continues to spend heavily on its YouTube platform. It has three more quarters to enjoy the benefits of its Adap.tv purchase before its comps get tougher, but the success the company had in video during 2013 before it closed the Adap.tv acquisition is a strong indicator the company's organic video efforts, like HuffPost Live, are paying off.