IAC and AOL: Tale of Two Online Media Companies
Barry Diller's IAC/Interactive Corp and AOL both reported earnings before the bell. IAC's results exceeded expectations — it grew revenue 16 percent on 20 percent higher search ad revenue.
In contrast AOL's revenue fell 23 percent on a 19 percent drop in revenue. IAC's stock closed the day about 2 percent lower, while AOL's stock plummeted 14.6 percent. IAC has $1.5 billion in cash on hand, so would Diller be interested in buying or part of AOL? Diller didn't provide any insight into the question on the company's earnings call, but it's intriguing.
The whole point of spinning off AOL from Time Warner was to unleash the growth potential —to turn into an online company, not dissimilar to many parts of IAC. So why the disparity in today's performance? AOL blamed problems on advertising "100 percent" due to the layoffs that disrupted ad sales teams. And then there's the fact that it announced today that it's selling its ICQ messaging service for $187.5 million, at a significant loss. (Interestingly, Digital Sky Technology also owns a piece of Facebook).
AOL argues its business isn't as grim as it looks. Atop the company's earnings report CEO Tim Armstrong says, "We are encouraged by the advertising market's recent strength." The company emphasized that it's significantly slashing operating expenses and has $264 million of cash on hand. The company continues to strip away extraneous businesses, to focus on content. And based on recent quarters, perhaps we shouldn't be surprised that subscribers continued to decline.
IAC didn't post a profit, simply narrowed a loss to 16 cents per share from 19 cents a share in the year-ago quarter. But it did show significant progress from last year, and it tapped into stronger advertising trends thanks to the greater popularity of its Ask.com web business.
As AOL pushes to monetize online content, it's interesting to note the different pieces of IAC that are working. IAC"s "ServiceMagic," which connects homeowners and contractors grew revenue 35 percent in the quarter from the year-earlier period. IAC's media division, which includes Vimeo, which enables video sharing and e-tailer ShoeBuy.com, showed 20 percent revenue growth. Perhaps AOL shouldn't invest too much in its personals business: revenue at Match.com and chemistry.com dropped one percent in the quarter.
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