AOL Keeps Growing While Yahoo! Is Stuck

 | Aug 06, 2014 | 4:44 PM EDT  | Comments
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AOL (AOL) delivered an upbeat earnings report today that put a spring into its stock price, which is up 8%. 

The results are a contrast to the last report, which sent AOL down into the low $30s on concerns about profits.

This time around, AOL was able to show overall ad revenue that was up 20% year on year. Within that, global display ad revenue was up 9% year on year when you exclude the effects of Patch and other de-emphasized brands, and up 60% for third-party revenue, which includes Adap.tv and other programmatic revenue. There was a $0.02 beat on earnings per share relative to consensus.

This growth in revenue stands in contrast to Yahoo! (YHOO), which shrank in the most recent quarter. It's a head-scratcher why AOL should be seeing growth while Yahoo! is seeing declines.

Yahoo! is obviously a much bigger property than AOL. It also is operating within a booming ad market.

I was debating Jay Yarow of Business Insider earlier today on Twitter, and he was making the case that when CEO Tim Armstrong was two years into his turnaround at AOL, investors wanted to fire him -- and yet it has worked out since. Therefore, shouldn't investors be more patient with Yahoo!'s Marissa Mayer?

Here's my response:

Armstrong took over in 2009, during a nuclear winter for advertising. AOL's ad revenue had been in free fall. He steadied the ship. The ad market today in which Marissa Mayer has been operating has been booming.

Armstrong had a much weaker hand of assets given to him in 2009 compared the one Mayer got in 2012. Yet he still found a way to get display ads growing, in addition to his programmatic stuff.

Armstrong has made good, solid M&A decisions since taking over -- HuffPo, TechCrunch, Adap.tv. AOL shareholders have made back what he spent on M&A through increased share value. Yahoo!'s $2 billion in M&A has been disastrous and is not reflected in a share price that puts the core business at a negative valuation currently.

Armstrong has made smart moves in relation to selling off part of his patent portfolio to unlock about $1 billion in unexpected value for shareholders. Mayer has only done stock buybacks, and at a much slower pace since Dan Loeb left the board.

Armstrong has always had a plan that makes sense for AOL and the assets it has. It's not the plan that Yahoo! should follow. It's the best plan for AOL. And he has executed the plan. Mayer has communicated no discernible plan.

The bottom line is that Yahoo! shareholders should be offended when Mayer pleads for more time to turn around the business, and when she reminds us that she has always said it would take years to start growing revenue again.

Years? When AOL, which is no whiz in mobile, of course, is growing its display revenue at a 9% year-on-year clip? Please.

The Yahoo! sales organization is in disarray, and Mayer has no sales background to enable her to know how to fix it. Earlier this week, the former head of Yahoo!'s U.S. sales, Mark Ellis, joined Time. This is not a good sign that all is well in Yahoo!'s sales group.

If AOL can grow, Yahoo! should be growing at a 50% faster pace.

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