AOL’s Ad Growth, New Content Strategy To Drive Earnings Wednesday

AOL (NYSE:AOL) will announce its earnings for the first quarter on Wednesday. It has been focusing on its content strategy in the last couple of quarters and has made some significant content property acquisitions to fuel its growth in the advertising business, which accounts for a major portion of its overall value. In the last quarter, it saw its global advertising revenue grow 10% while its subscription and other revenue sources continued to dry up. It also sold off a significant portion of its patents to Microsoft to raise cash.

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All eyes on advertising growth

Advertising across all of AOL’s properties was the only revenue stream which grew last quarter and that is expected to continue going forward as its dial-up subscription and other businesses decline.

We expect AOL to continue to increase its advertising revenue going forward, but its current strategy of growing through acquisitions is not sustainable in the long run. It has a significant amount of cash from the patent sale to Microsoft, which should buy it some time to restructure its existing businesses as well as focus on better monetizing its content properties.

We expect to focus more on its mobile, social and local offerings to drive advertising revenue in the coming years. We will be watching its earnings call closely for any signs or announcement related to its content strategy. AOL may also be targeting the online video advertising market, through AOL On, its recently launched premium video platform. We could see more light on that in the earnings call.

AOL competes in the online video advertising market with the likes of Google (NASDAQ:GOOG), Facebook, Microsoft (NASDAQ:MSFT) & Yahoo (NASDAQ:YHOO). Display ads on its own properties currently account for a third of AOL’s $16 Trefis price estimate, which stands nearly 30% below its market price.

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