AOL Accepts Big Q2 Ad Revenue Drops as Part of Restructuring

AOL’s ad revenue was down significantly in Q2 2010 – from display and search on its owned properties to ads on its Advertising.com network – in comparison to Q2 2009. Despite the fact AOL has banked much of its new business model on digital ad sales, CEO Tim Armstrong downplayed the inevitable Wall Street reaction. In fact, as it drastically alters its ad businesses across the globe, reducing inventory and shutting down operations all together, the firm expects more ad revenue declines next quarter.

“It’s about taking a company that was very sick and making it healthy,” Armstrong said, suggesting that much has changed in the past year. “This is the first quarter in Q2 where we were able to start playing some offense as a company,” he added during the company’s earnings call with investors this morning.

Overall, total advertising revenue fell 27 percent from second quarter ’09 to second quarter ’10. International display ad sales experienced the most drastic loss, falling 52 percent over that time. Domestic display, however, fell 7 percent. The company attributed the international display decline of around $10 million to a significant reduction in operations in France, Germany, and other countries, as well as lower revenue from Bebo, the social network AOL sold in June.

AOL closed numerous European offices in January as the company sought to reduce operating costs, including those in Germany, Sweden, and Spain. At the time, Armstrong described the company’s international operations as “wildly unprofitable,” which he said led the company to reconsider which markets it wanted to focused on.

Like Yahoo, AOL is touting its push for premium ad dollars from brands, as opposed to selling cheap inventory to lesser-known advertisers. Armstrong told investors 60 percent of its sold AOL homepage campaigns in the quarter came from what he called premium advertisers, compared to 40 percent in Q2 2009. He added that brand advertisers like P&G, General Motors, and American Express boosted spending year-over-year.

In all, AOL display revenues fell 13 percent, or $18 million. That, said the company, was in part due to a 50 percent drop in the amount of available domestic network inventory. The firm added that observers can expect year-over-year declines in domestic display in Q3 2010 also.

Overall, while AOL execs recognized the numbers look bleak, they indicated the Q2 results were somewhat expected as a result of initiatives the firm has itself implemented. The company indicated approximately 17 percent or $70 million of its total $110 million advertising revenue declines in the quarter could be attributed to its own chosen initiatives, leaving 10 percent to other forces.

Search, contextual, and affiliate marketing revenues also fell. The company reported a drop of 28 percent year-over-year in search and contextual ad sales in Q2, noting that the firm reduced the number of impressions or links disseminated through its network.

Jack Marshall contributed to this report.