AOL Internet Subscription Business Continues to Decline

by Trefis Team
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AOL (NYSE:AOL) recently announced its Q1 2011 earnings in which it mentioned that the revenues from its internet subscription business declined by 24% in Q1 2011 compared to the same quarter last year. [1] The internet subscription is AOL’s legacy dial-up internet access service, which has seen a large subscriber decline as better broadband products from companies like Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), AT&T (NYSE:T) and Verizon (NYSE:VZ) take over.

Impact on AOL’s Search Business

According to AOL, the number of domestic internet subscribers declined by 22% in Q1 2011 compared to the same quarter last year. [1] The problem with subscribers decline is not only limited to its internet business, but also trickles down to its search advertising business. These subscribers are the most loyal users of AOL’s search portal and the decline in internet subscribers affects its search advertising business as well (see Vanishing Subscribers Hurt AOL’s Search Business).

AOL has a miniscule share in the search advertising market and has consistently lost market share to Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) in the past. Resurrecting AOL’s search business amid large subscriber declines is a tough obstacle to overcome.

We currently maintain a $22.23 price estimate for AOL stock, which suggests upside to market price.

See our complete analysis for AOL stock here

Notes:
  1. AOL Q1 2011 earnings conference call transcript, May 4th 2011 [] []
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