AOL Earnings: Down 58%, but CEO Armstrong Says 'We're Plowing Forward'

During AOL's first-quarter earnings call, confidence in its audacious new mission statement, "Beat the Internet," was in abundance -- even if the results themselves required a lot of explanation. (DailyFinance is owned by AOL.)

Net income for the quarter, at $34.7 million, was down 58% from first-quarter 2009, and advertising, the biggest contributor to revenue, was down 19% to $354.3 million. Domestic display advertising was off a somewhat milder 10%, but Chief Financial Officer Artie Minson warned that declines in display ads would steepen somewhat in subsequent quarters due to the effects of a reorganization of AOL's sales force. Positive year-over-year comparisons in display ad revenue won't happen until the first quarter of 2011, Minson predicted.

But Chairman Tim Armstrong emphasized over and over that the sales force restructuring, while painful, was necessary and would pay off in the long run for AOL, which was spun off from Time Warner as an independent company in December. "We ripped the Band-Aid off, made the change and now we're plowing forward," said Armstrong, who joined AOL a year ago after making his name at Google (GOOG). "It would be easy to look at our results and say there's a major issue with AOL's strategy around advertising, something's wrong. But I believe in essence it's the opposite."

Ad Demand Is Up

The disruption in ad sales was anticipated, he said. "In essence, what you're doing is putting the pipeline on hold." But, he added, "The salespeople that were not affected in the changeover were almost 100% universally over goals," evidence that AOL should be due for a strong rebound once the kinks are worked out. "The demand for AOL products and services is up in the market, not down," Armstrong said.

Investors apparently reacted to the more immediate news of lower earnings and a muted outlook for the next few quarters: In midday trading, the stock was down around $3.80, or 13%, to $24.25.

Asked how he saw AOL stacking up against Demand Media and Yahoo (YHOO), two large Internet companies that compete against AOL on somewhat different levels of the digital content marketplace, Armstrong said: "I would put us up head-to-head against anybody on the Internet, and certainly against Demand and Yahoo."

He pointed to recent moves by Yahoo, which has increasingly been emulating AOL's practice of hiring established journalists to create original content, as a sign that executives there believe AOL is onto something promising. "I don't spend a ton of time watching them," he said, "but I think they've switched their strategy -- their strategy is more similar to ours than it was a year ago."