14 DAY TRIAL // AOL has been on the path to recovery and discovering its ‘inner self’ for more than a year now. So how’s it going for the internet giant? Not so great, actually. AOL’s latest financial results, for Q2 2010, managed to go below the analysts’ already low expectations. Revenue declined 26 percent year-over-year, mostly driven down by loss of dial-up subscribers but also by a drop in advertising revenue.
“In the second quarter, we continued our efforts to successfully reposition AOL for growth and the Company is getting healthier every day,” Tim Armstrong, AOL’s Chairman and CEO, said, trying to keep moral up. “Although we have much more significant goals for the future of AOL, we are pleased with this quarter’s internal and external trends.”
Analysts were expecting revenue of $602 million for the second quarter, but AOL only managed to bring in $584 million, a 26 percent drop from Q2 2009. Broken down, advertising revenue went from $407 million to $297 million, a 27 percent drop, and subscription revenue declined from $355 million to $260 million, also a 27 percent drop.
For many years, AOL’s revenue was largely dependent on its internet subscription service. It’s hard to believe, but in 2010 in the US, AOL still generates almost half of its revenue from dial-up services. However, the subscribers number is dropping fast and it needs to find an alternative revenue source. AOL’s plan is to focus on advertising, but that isn’t going as well as it would want.
Display advertising revenue, on its own sites, was down 13 percent year-over-year. Search and text ad revenue though dropped a more significant 28 percent from 2009. The biggest drop was in revenue from its ad network, which went down by 42 percent.
AOL also decided to take a $1.4 billion goodwill charge, largely for its sale of Bebo. The company recently sold the social network for basically nothing, having paid $850 million in 2008 for it. However, AOL will be able to write-off much of that for tax deductions.
“In our 2010 consolidated U.S. federal income tax return, we expect to treat the common stock of Bebo as worthless for U.S. income tax reporting purposes. We estimate our current U.S. income tax basis in Bebo to be $767.1 million. As a result of the anticipated worthless stock deduction for the common stock of Bebo under U.S. income tax law, we recorded a deferred tax asset and corresponding income tax benefit of $302.7 million in the second quarter of 2010,” AOL explains.