Earlier this week, All Things Digital announced AOL's (AOL) new subscription service via its Gathr platform. Gathr will offer bundled and discounted services through six monthly subscription packages. The new service will contribute to AOL's subscription revenue, which represented 32% of fiscal 2012's total. With shares in the middle of their 52 week range, investors could see strong gains from a positive reception of the service.
The six plans, which range in prices of $15 to $30 a month, launched on Monday. Here is a detailed look at the current six plans available:
· 4 Fun: $20 a month, $55 value, includes Pandora One Ad Free subscription, $10 Amazon gift card, 5 Redbox rentals, $25 Restaurant.com, $10 Living Social gift card
· Playroom: $15 a month, $34 value, includes PBS Kids Play monthly subscription, ABCmouse.com monthly subscription, 5 Redbox rentals, $10 Amazon gift card
· Gathr Supreme: $30 a month, $75 value, includes $10 Fandango gift card, Pandora One Ad Free subscription, $10 iTunes gift card, Consumer Reports magazine subscription, Five Redbox rentals, $10 Living Social gift card, $25 Restaurant.com gift card, Norton Antivirus subscription
· Man Cave: $15 a month, $37 value, includes Maxim magazine subscription, 3 Redbox game rentals, 5 Redbox movie rentals, Pandora One Ad Free subscription, Car and Driver magazine subscription, $10 Amazon gift card
· Safety First: $15 a month, $36 value, includes Norton Antivirus subscription, Private WiFi for three devices, LifeLock subscription, $10 Amazon gift card
· Dinner & A Movie: $30 a month, $60 value, includes $25 Restaurant.com gift card, $25 Fandango gift card, $10 Amazon gift card
Gathr also allows customers to customize their own package by selecting from many of the items listed above. A customizable package of three items is $15 a month. If Gathr is well received it could also have a positive impact on several of the component companies like Pandora (P), LifeLock (LOCK), Amazon (AMZN) and Outerbox (OUTR). I think the service makes sense for anyone who already uses something like Pandora or Redbox. Why not get some additional gift cards or products for the same monthly price.
To announce the subscription service, AOL is also planning a regional television commercial attack. The company, who has not used TV ads in the Tim Armstrong era, will target the regions of Seattle, Minneapolis, and Atlanta with advertisements. Gathr is also offering a free monthly trial subscription of any of the six plans.
I think this subscription service will be a huge hit. AOL has a large number of current subscribers it will market the plans to. The huge regional television focus should pay off nicely in three important markets. The company also has the ability to add several new items to the plans or create new plans going forward. The company specifically named Dollar Shave Club and Birchbox as examples. Consider if AOL could get bigger players like Netflix or Hulu Plus to join the ranks.
In the most recent second quarter, AOL saw total revenue increase 2% to $541.3 million. Advertising revenue grew 7% to $361.2 million. Subscription revenue of $166.0 million was a decline of 5% from the previous year, but still made up 30% of total quarter revenue. In fiscal 2012, AOL's subscription revenue totaled $705 million. This was a decrease of 12% from the prior year, but was one of the lowest declines in recent history.
AOL has shifted away from being a subscription user based company. Instead AOL relies on advertising revenue from many of its top brands like AOL.com, Huffington Post, and Mapquest.com. The company saw advertising revenue increase 8% in fiscal 2012 to $1.4 billion. In the fourth quarter of 2012, AOL posted its first revenue growth in eight years.
With the addition of these added subscriptions, AOL could surprise investors and analysts for fiscal 2013 and fiscal 2014. Analysts on Yahoo Finance are calling for revenue growth of 3.3% in fiscal 2013. Earnings per share are expected to come in at $1.53 for 2013. In fiscal 2014, analysts see total revenue growing 7.4% to $2.43 billion and earnings per share hitting $1.86.
Shares of AOL look like a strong investment for the first time in a long time. The company has seen its advertising revenue grow thanks to the strength of many of its major brands. The addition of this subscription service segment should add additional revenue not currently forecasted in. I expect to see AOL beat earnings and revenue estimates for fiscal 2014 and see several upgrades from the Gathr reception. It's time to go old school and add AOL to your portfolio.