February 6th, 2008
AOL revenue continues to slide; Who are these 9.3 million AOL access subscribers?
AOL’s revenue and operating income continued to slide as the parent Time Warner focuses on advertising. For the fourth quarter, AOL reported operating income of $274 million on revenue of $1.25 billion. That’s down from operating income of $910 million on revenue of $1.84 billion.
AOL’s results (Time Warner statement) are an interesting sidebar to the Microsoft-Yahoo saga. The Microsoft $44.6 billion bid for Yahoo gives Time Warner an excuse to dump AOL. Perhaps Google would buy AOL. In either case, AOL is in play or it’ll become left out of the advertising consolidation. AOL simply won’t be able to compete in online advertising world dominated by Google and Microsoft.
In the meantime, AOL erosion continues. Nevertheless, it is still amazing that AOL still has 9.3 million access subscribers. Who are these people? And why are they paying for what they could get for free?
But I digress. By revenue AOL is just a hair larger than Time Warner’s publishing business. And in the fourth quarter publishing had more revenue. For 2007, AOL had revenue of $5.18 billion, down from $7.78 billion in 2006. On the bright side, operating income was up for the year to $2 billion in 2007 from $1.89 billion in 2006. The results were roughly in line with Wall Street’s expectations. For instance, Merrill Lynch analyst Jessica Reif Cohen had projected AOL advertising revenue growth of 10 percent and that’s what the online unit delivered.
Other notable nuggets:
- Revenue at AOL was down 33 percent for 2007 and 32 percent for the fourth quarter.
- Subscription revenue fell 52 percent due to the sale of AOL’s international access business.
- Adjusted operating income before depreciation and amortization was up 4 percent for 2007. In the fourth quarter that measure of operating income was up 29 percent.
- In the fourth quarter, AOL had 109 million average monthly domestic unique visitors and 49 billion page views.
- AOL had 9.3 million U.S. access subscribers at the end of 2007, down 3.8 million from a year ago. Even so losing 740,000 subscribers in the fourth quarter was better than Deutsche Bank’s projection for a loss of 1 million lost subscribers. Again, who are these people?
Update: On the conference call, which takes a long time given the girth of Time Warner, executives outlined the following key points:
- Time Warner will separate the AOL access and advertising businesses. That needs to happen anyway. We need to judge AOL on the advertising business and Time Warner needs to sell its access business. The problem: AOL’s ad business still may not look so hot. Display ad revenue in the quarter was up only up 3 percent.
- First quarter AOL ad revenue will be flat to down, but executives noted the second quarter will see some growth.
- Time Warner said AOL hasn’t seen an ad hit from a slowing economy, but did note that Time Inc. has.
- Would Google force an AOL IPO? Executives said Google hasn’t indicated any such thing. Then again, it’s not clear who would want it beyond a player like Google looking for a tuck-in acquisition.
Other takes worth reading:
- Henry Blodget’s take on the Time Warner call.
- IP Democracy’s Cynthia Brumfield on Time Warner.
- Eric Savitz at Barrons.
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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