AOL Banks On Content To Drive Earnings But Stock Is Pricey

AOL (NYSE:AOL) is expected to announce its earnings for Q2 2012 on July 25. It may have started out as a technology business, but has transformed into a content business over the years. It has been focusing on its content strategy in order to generate more display ad dollars and capture a larger share of the online advertising market, where it competes with the likes of Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO).

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While its Internet subscription revenues continue to decline, it has been able to compensate that by gradually increasing its display ad revenues. It also offloaded a few of its patents to Microsoft, which got it some much-needed cash. We expect to focus more on its mobile, social and local offerings to drive advertising revenue in coming years. We will watch its earnings call closely for any signs or announcement related to its content strategy.

AOL now has over 60 million smartphone downloads and around 40 million mobile unique users growing at 25% year-over-year. Last quarter, most of the growth was driven by Huffington Post, Moviefone, DailyFinance, Patch and AOL Autos. AOL is targeting the online video advertising market going forward, with AOL On, its recently launched premium video platform. It also launched new premium ad units for mobile last month, which could help it monetize its mobile audience better. AOL could also generate licensing revenue by making it available to other publishers.

AOL competes in the online video advertising market with the likes of Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) & Yahoo (NASDAQ:YHOO). Display ads on its own properties currently account for a third of the $18 Trefis price estimate for AOL stock, which stands nearly 30% below the market price.

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