Ad Growth Slowdown Adds Pressure To AOL’s Turnaround
By David Kaplan - Sun 19 Aug 2007 06:04 PM PST
Just as AOL was finding success after reorienting its business model towards advertising instead of providing internet access, the slowdown in the growth of online ad spending is complicating its turnaround. Both the NYT and the FT have articles in their Monday editions about the possible repercussions:
NYT: AOL execs consider the slowdown a temporary bump in the road, pointing to one-time issues, such as the portal’s redesign and changes in the display of search results. Temporary or not, Richard Parsons, chairman and CEO of Time Warner (NYSE: TWC), which owns 95 percent of AOL, earlier this month said he no longer expects AOL’s ad growth to match or exceed the overall growth rate of online advertising.
AOL’s current travails are the same ones plaguing other portals such as Yahoo, as web users find other ways to access their internet interests including social nets. To its credit, AOL recognized these trends early on and bought Advertising.com back in 2004. That unit is now AOL’s fastest growing property. AOL CEO Randy Falco even says that “Advertising.com might become more important than the AOL brand itself.”
According to Gordon Hodge, an analyst with Thomas Weisel Partners, AOL’s reforms and the strength of Advertising.com might not be enough to help the overall company weather a deeper slowdown: “I think the dial-up subscriber losses and profit losses could overwhelm the gains they could make from advertising.”
FT: Falco told the FT the lower-than-expected ad growth was a “hiccup” and didn’t indicate “radical disruption.” Falco, not surprisingly, would rather try to put the emphasis on what’s coming: “We have four objectives: Revamping programming, becoming a truly global company, building a better ad-serving platform and focusing on getting the cost structure right for the company. We feel good about next year. The pieces are in place.” The article really is a sidebar to the main attraction—a look at how the results, and what is perceived as a failure to warn about them, have some analysts and investors scaling back their own expectations. Sanford Bernstein analyst Michael Nathanson cut TW’s price target after Q2 earnings: “They had good momentum with the investment community [for AOL]. Given that the results were a very large surprise, the market will now be a bit more sceptical about AOL.”
Parsons’ would-be successor Jeff Bewkes put a large chunk of his executive credibility on the line with the “free AOL” strategy—and his choice of Falco and Ron Grant (not Ron Baker, as he is identified in the piece) to replace the management team that launched the change. As the FT notes, the TW board is scheduled to meet again in October.
Posted in: Advertising, Companies, Time Warner, AOL
