Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

AOL Inc. (NYSE:AOL)

UBS Global Media and Communications Conference Call

December 11, 2013 10:00 AM ET

Executives

Tim Armstrong – Chairman and CEO

Analysts

Eric Sheridan – UBS

Eric Sheridan

I think we’re -- okay. I think we’re going to get started with the next fireside chat by -- my name is Eric Sheridan, U.S. Internet and Interactive Entertainment analyst here at UBS. Thanks everyone for being here today. And it’s my pleasure to have Tim Armstrong, CEO of AOL to be here with us today and talk about all things AOL. Thanks for being here.

Tim Armstrong

Thanks for having me.

Eric Sheridan

You know, I wanted to start-off, Tim and I were just talking, you know, it was at this conference a couple years ago that Tim made his first presentation I believe on conference circuit, right after AOL had been spun off from Time Warner. It’s been -- it’s been a really interesting couple of years for AOL. Tim’s done a lot of work to reposition the company. I wanted to sort of throw it open to Tim to start talking about all of the things he’s done at AOL to sort of transform the company, frankly.

Tim Armstrong

Yes, I think, first, it’s good to be here. Again, you know, the transformation of AOL, I think it’s come down to a few areas. And I think there’s kind of three simple things we’ve done as a business. You know, one is we got the global team at AOL to basically buy into a strategy, which was, you know, significantly bold, I think. And some of the things have gone up and down inside and outside the company, have been because we chose a pretty bold strategy.

The second piece4 is that we kind of reengaged then a very deep levels of kind of core AOL business overall, which I think has been kind of pushed off to the side. And the third thing is we made some very strategic investments into areas that we thought, a few years ago, would be the places where the businesses in the future was going to go and also, not just where we’re going to go but also the non-commoditized places it would go.

So if you look at things like programmatic advertising and a video on the Brandspace, some of things that a few years ago, I think, investors questioned a lot. A lot of people see those as more now being in favor. And I think as you look forward at the company, you know, the company’s a much different company when I was here right after the spin-out at the conference.

You know, we had 10,000 employees. We now have 5,000. We had a company that was declining at 30% a year. You know, we have a company that’s growing. And I think at a high level, you know, probably the single biggest difference when you go around the company, is just, you know, I mentioned this before we started is, you know, the leadership and people we have at the company now are really built to scale and built for the future.

And I think in the Time Warner AOL days, there was a lot of financial management. And I think we’re now basically, especially in 2014, get in the point where we’re doing real, kind of more product management with both with the consumers and revenue products.

Eric Sheridan

You know, Tim, you talk a lot about the barbell strategy for AOL. You know, I think that’s one of the questions we get a lot from investors. What does that mean? Sort of how do you position the company and what does that mean from an execution standpoint going forward, from what opportunities you’re skating after?

Tim Armstrong

Yeah. So the barbell strategy at a high level is, you know, we have a pretty fundamental belief that most business end up, both our advertisers, not so sure on the consumer side too, but in our revenue side businesses, that our advertising days, basically has two needs. They have customer acquisition and revenue acquisition at scale at the highest scale, lowest price, which is on one side of the barbell, which is really our investment and programmatic advertising, which is essentially a simple way -- the automation of advertising.

And on the other side of the barbell is basically debrand integration and brand experiences. And I was out in Detroit last week at some of the car companies. I was in Silicon Valley last week, earlier on the week, meaning with both partners and advertiser. And our team’s out there and in every single meeting I went to, you know, the most successful customers we have and the biggest demand from customers is to have both brand experiences and advertising that’s automated at scale.

And by us, focusing on that, we’ve also been able to yield manage our pricing, we’ve been able to yield manage the investments we’re making as a company. So, we use that as a filter for the places that we’re investing.

And the reverse side of the barbell strategy is something we talk about a lot internally inside the company, which is -- don’t stand in the middle. I think the places that -- in our industry that’s going to get disrupted the most is going to get the most commoditized and is the most dangerous. And if you’re caught between scale of automation and you’re not all the way on high quality brand experiences, and even some of the things that we’ve changed in the company in the last 12 months, are places that have -- or have gotten trapped in the middle because we haven’t done a good job of getting the high level automation or high level quality and brand experiences.

Eric Sheridan

Okay. Delving into the brand group, you know, if we look through maybe the three groups inside the company. One of the big initiatives is live video, you know, during the upfront last year, you showed off a tremendous amount of original content that was being developed at AOL to a literally packed room. I was stunned at how many there were in the room, it was really amazing turn out. Talk a little bit about video strategy within the brand group and how you think that derives the business going forward.

Tim Armstrong

Yeah. You know, our, again, from a strategy standpoint. Swipe town (ph) and Motion has out trumped almost every other form of media over time. So we believe as network speeds get faster, devices get faster, you know, the quality, even if you’ve seen some of the new TVs that are coming out now. The screen quality on them is, you know, is better than real-life actually.

So if you look forward three, four, five years, highly likely, half the internet traffic today is video. Looks like 80% to 90% of internet traffic will be video in the next few years. Video for us is a place that consumers really like. Networks and hardware companies are building their devices for video and we happen to be very good at both producing video and partnering with video companies.

So our strategy that we’ve developed on the video side is basically a pyramid at the top. It’s our high quality slate productions that we do, which I think we had the highest sell-through rate in the industry on last year, in 2013, this year.

The second one is syndicated partnerships. So we have, I think the largest collection of high quality video partnerships from cable companies and high quality producers. People like Discovery, ESPN, those type of companies. And we had -- have been building and have been building a programmatic market place for video, both on content distribution on advertising at the bottom of the pyramid and we acquired Adap.tv this summer. That, we think is the best supply side and demand side market place for video.

So when we think about video overall, we think about that pyramid and investing in that. Video for us is also, it’s not a single strategy, it’s a double or a triple meeting that and investing in video also means we’re investing in mobile because video works very well for mobile. So you know, differently than most of our peer companies, you know, we have really looked at our investment and video, and also our investment in mobile and we know, we’re seeing those returns right now both on the consumer and advertising side.

So, you know, I – AOL, when we spent a lot of time wondering was – I think we are number 27 on the web in video. This fall, we became number one in terms of video ads served and we’re generally number two every month in contents served on video and we feel pretty strongly that that’s going to be a core capability for the Company going forward.

Eric Sheridan

All right. Some of the brands you’ve acquired, maybe talk a little about how they become part of the Company and also how they set into some of the international expansion and diversification, how things imposed and TechCrunch in particular.

Tim Armstrong

Yes, so when we acquired a brands and I think there were a lot of questions on the investor side when we acquired those brands, some people wonder why we did it and the reason we did it was two simple reasons.

One is, we felt like over a long period of time that the technology that’s coming out of Silicon Valley will get more similar and more commoditized, meaning everyone will sort of pig pile on a lot of the same products and services and it’s something that everyone believes that a high scale will be five or six global platforms for distribution.

And when that happens, the thing that people will use to differentiate themselves are content brands, and so we decided to make an early bet on the content brand side that that would have a meaningful differentiation for us on a distribution side with those partners, which it has and continues to do.

The second piece is that if you think there’s going to be five or six major global distribution systems, you know, mobile, desktop, plasma, single registration sign-ons that if you have power on that brands they will be put all over the world and you’ll be able to have really big communities driven around them.

And then on top of that going back to our video strategy, you can also start laying in other strategies on top of this. So when we acquired the Huffington Post, Huffington Post was a U.S. blog site namely today with 20 to 30 million users, today it’s a global site. We have video, HuffPost live on it, we just passed 500 million views for videos for Huffington Post. We just had a record breaking week last week for video views on Huffington Post, it’s now 80 million users globally, we’re on five continents and half of the traffic now and growing is international.

So, we believe pretty strongly that in the brand space and camp, although a few years ago people probably had a hard time understanding what those investments were, you fast forward it to today, Facebook, Instagram, Twitter, Apple, Google, YouTube, Microsoft, Xbox, every single one of these companies have a content strategy partnering with brands.

AOL is one of the largest producers of content every day in the world and we’re very attractive partner in that space. So I – our brand investment space has been important.

The second piece is bringing that piece of profitability for us and investors have been patient with us getting that group to profitability and growing and I think over the next year or two, you know, investors will see very stronger returns from us in terms of profitability from that segment overall.

Underlying the entire thing is what I would call the Jimmy Iovine model of why brands are important which is, we visited Jimmy at his house a couple of years ago and he said, do you like music? And I say, yeah I like music.

He said, name 40 songs you’d put in an iPod right now. And I could name about 12 songs and he said that average person – I forgot the number, he said it’s about 17 and you know, human beings have a hard time remembering 200 brands or 100 brands or 50 brands and one of important parts of our brands strategy is the human limitation on understanding brands and the number of brands and what we’re trying to build is a group of brands that are most important brands in key human verticals overall.

So, as an investor, when you look at our Company and what we’re investing in, we’re not just picking out random brands to invest in our random things, we’re really picking on kind of the human limitation of people wanting – in the human brain, that limited amount of brands to understand certain spaces and that’s something that we’re really geared into.

Eric Sheridan

So another area where you’ve made some investments is Patch which is sort of disaggregating local news in a lot of ways, maybe help us understand sort of where Patch is today both revenue and cost and so how you continue to evolve that as a business platform going forward.

Tim Armstrong

So, well, Patch is at the highest level. For those people who don’t know about it, it’s an investment we made in local news and information, essentially to ride on the fact that local news an information is very – even in the internet age, where things can be big and global, local is important to people.

There was receding amount of information from traditional media and we decided very aggressively to extend Patch on, out to about 900 communities in the U.S. That got challenged in our proxy contest overall and I think from the standpoint of where we saw Patch going, we believe that from an investment standpoint on Patch, retrenching Patch to a place where it can be successful and profitable in the towns that it’s in.

We’ll restructure for the fact that it would be profitable, we restructured this suburb [ph], we have refocused on the strongest towns as roughly, we’re focused on about 500 towns. Our total is more towns than that that are live but to the 500 that we’re focused on and we made a promise to investors that by the end of this year, we would get it to run rate profitable where we have a strategic partnership with Patch.

We are in a place right now where I expect by the end of the year for us to have a solid plan on run rate profitability and we’ll have more to say about that over the next month or so. Patch has gotten a lot of consumer traction, it’s about 18 million people a month on the consumer side in those towns. Revenue has actually gone up on Patch even post the restructuring overall but I would say that an AOL investor, you should think about Patch 2014 and beyond as the asset with optionality for AOL but most likely in a partnership scenario as we stand right now, subject to change in the next four weeks but we’ll probably have a partnership around Patch.

Eric Sheridan

Okay, okay. Let’s turn to AOL Networks for – again, there’s been a lot of investment and repositioning the business around video, you talked about the Adapt.tv deal, you know, Programmatic Upfront which is the first one ever held in September, maybe talk a little bit about what you’ve done in that business, all the investments that you’ve made and sort of how you think about that business over the next three to five years.

Tim Armstrong

Sure. So, you know, the automation of Madison Avenue is not just somewhere to the automation of Wall Street and you know, from the areas – everything that can get done with machines will get done with machines and everything that can only be done by humans will only get done by humans and that is a very significant change for the advertising business going forward.

Most of the major global customers have a programmatic ad strategy. And when you think about it at the simplistic level, the same way people put in trading systems, forecasting systems, have integrated CRM systems, those type of things; those things are culminating and what is a – will eventually become in the next five to 10 years, a real time automation-based high level transparency, high level analytics-based advertising systems that will be – we’ll hit, my guess is over 50% of advertising in the next 10 years, it could be sooner but – and I think if you look at today, some of the businesses that we’re in, the current is not not all of the advertising online and offline but in the digital business as you get into double digit percentages of those business being programmatic overall.

So our strategy around AOL Networks is to be a leader in the automation of advertising and we’re doing it in multiple different ways. One of the ways is in the video space as having a buy side cell side complete marketplace for the trading of video advertising which is now starting to build in linear TV as well. So, as an advertiser, you can buy advertising as easily as you can buy goods on Amazon, in the ad marketplace.

The second piece is taking our display network which is very strong and AOLs got one largest display networks and automating that we have a product called AOP and Marketplace is on the supply side, AOP is on the demand side.

So between Adap.tv, AOP and Marketplace, we are now starting to bring enterprise solutions into the customer base, the agencies and clients and it’s getting a high level of receptivity, very fast growing percentage of our revenue is around automated advertising and I believe overtime, if you’ve seen iLunascape slide which shows all the players between supply and demand in the – on digital marketplace, that the game of musical share is going on right now, there’s 100 companies, there are seats for 10 to 20, the music is slowing down a little bit.

So you’re seeing a lot of people looking for chairs to sit in. I think AOL got a fairly big chair in the market place, and we’ve done a good job -- very careful and precise job about choosing what our chair is and why advertisers and publishers would want to deal with us, but you will see us continue to invest in that trend. If they megatrend the automation of Madison Avenue is a very, very meaningful time. And it’s going to be the same size trend that hit e-commerce, travel, other industries and it’s just starting.

Eric Sheridan

So to talk about that fragmentation we just had an ad tech panel right before this. How do you think that fragmentation plays out as you move to those chairs? You have some very large players like yourself and Google and Facebook and the like, and then you got a whole host, as most investors point to an info-graphic that has a whole host of players on it that sit between publishers and advertisers. What’s your best guess for how that sort of plays out and how the industry goes from relatively fragmented to your point less chairs?

Tim Armstrong

Yes. So I think there’s -- the first thing is connecting. And so the systems that are the fastest in connecting supply and demand together and having a unified platform save a lot of time and energy. Because under -- the underwritten thing which is why it’s a problem for all the point solution is, as an advertiser, your job as an advertiser is to take $1, GBP1, EUR1 and try to get as much of that dollar out to touch a consumer as possible.

In the chain of that, the things you have to spend money on, you have to figure out how to take the dollar and get somebody to put your ads in a place that make sense in that target. The audience you want to target, targeting data analytics, all of those things into that dollar. So the -- as best we can tell the average dollar when it comes out from an advertiser pocket goes to their ad agency, goes to the loam escape slide [ph] and gets out to a consumer up to $0.50 to $0.70 of that dollar can get eaten up in the food chain.

So as an advertiser right now the currently construct of the industry would make you believe people who can connect and between supply and demand and can actually put more of the dollar to work cheaper for you is actually a really meaningful outcome because the customer acquisition cycle is the more pennies in that dollar you can put against customer acquisition and revenue growth, the more you can invest back into the whole cycle.

So there’s a very big incentive for the customers to look for and players. And one of the things that AOL, we’ve done a good job of, because we’ve been one of the first players to connect that end to end cycle, and we are planning on moving that cycle even faster with better economics for the advertisers and agencies.

So there are point solutions that will stay in the point solution category because they’re very good and very strong. But if you look at the current landscape, it would be -- it would be hard for me to believe five years from now that we’re going to have the same amount of players than that. It’s more likely just like in the consumer side, you’re having five or six really big platform, you probably have five or six really big platforms on the marketing side as well.

Eric Sheridan

Okay. We spoke earlier about how you did announce a lot of video product during the traditional media upfront. You also decided to have a programmatic upfront during the ad week that was very well attended. Talk about why you saw that now was a good time to have a programmatic upfront. And now that we’re couple of months removed from it because that was in [ph] September, sort of what the feedback from and has been and what do you think that means for AOL’s business going forward?

Tim Armstrong

So the reason we did a programmatic upfront is we have to go about [ph] customer meetings. And one week when I was on the road last summer, about five of the meetings customers had chosen DMPs which are Data Management Platforms. And when I asked them why they choose this specific DMP, they basically said, I’m not really sure but our CEO said we had to do it, so I choose one.

And in doing that, customers were making a whole bunch of decisions based on data management which is essentially programmatic advertising. And I think it was kind of dangerous. And not that they have to choose AOL every time, although they should, but there was a lot of decisions in customer landscape that were getting made with very little transparency over what programmatic advertising was.

So we decided to hold the programmatic upfront which we had -- we had about 300 chairs sold [ph] and 900 people RSVP [indiscernible] tell you how big the trend is. These are the top buyers, we had five out of six top holding companies in the world, agency holding companies show up for it [ph]. And we invited our partners to get them to talk [ph] about what they were doing. But there’s two reasons really we did it. One is to make sure there’s transparency around decision making of what do you deciding to do and what should you do around the programmatic trends in advertising.

And the second reason which is really, really critical and critical for us as one of their suppliers, but critical for them as a customer is to understand specifically what programmatic advertising is, and there has a lot of definitions in a lot of different places. But instead of customers making decisions based on rushing to do things, having a thoughtful approach where our time [indiscernible] and platform, we want to be able to show that to people. And it goes back to the point solution, not point solution piece of the puzzle. The programmatic upfront for us which is the most highly attended advertising event other than the slate thing we’ve ever done, I think was a proof point that programmatic advertising, all the customers are doing it, all the agencies are doing it, and the people who are getting in front of it have a potential to benefit in a big way, and that’s why we did it, and it was a big success.

Eric Sheridan

And one of the segments if you [ph] go back couple of years ago, programmatic I think in the minds of most investors meant, remnant inventory and it meant deflation. But at that programmatic upfront, I thought you guys made a very interesting decision to talk about how the move was going to become about brand advertising and premium inventory as that’s where programmatic was going, even going so far as to say we’re going to start putting our own premium inventory into programmatic. Help us understand how that evolution will occur and how AOL might be one of the players that leads -- as a leader in that effort?

Tim Armstrong

Yes. Programmatic advertising let me just -- before we’re going into programmatic [ph] let me discuss what I hear from customers and people may have a different opinion. But when I’m visiting customers if you go to the major brand customers who spend a lot of money, they basically say I want the highest scale outcomes with a least risk, and I want to enhance my brand in the process, because in many cases their brand is the only thing keeping them on grocery shelves or keeping slides up [ph] when they sell automobiles or during those type of things. And one of the most dangerous things brand companies can do is put their brands in places where they -- it’s not ancillary benefit for them to advertise there.

So inside a programmatic, again, this is our belief at AOL and it’s a trend we’re seeing right now, there are things inside a programmatic like private market places where publishers and advertisers setting up programmatic private market place, one of the fastest area that’s growing revenue for us.

And the conversation there is not about price. The conversation there is about what is the outcome I get, what’s the scale and what are the brand analytics I get as an advertiser. And I think over some period of time programmatic advertising will have an increase in price for the best brands, overall both on the advertiser is paying more and the publishers are getting more. And the underlying trend underneath that which is really important to recognize is while that trend of programmatic going on in the market place for advertising and people are starting to set a private market places and have more transparency in all the quality inventory is.

In the outside world, in the real world outside of advertising, customers are shopping more online and buying things more online. And when they buy things online, when you go back to buy again in many cases, you’re shopping carts are preloaded.

So the cost of converting a customer to your brand over time is likely to go up because I can hit you at the end aisle display at the grocery store and try to convert you by giving you some kind of a price offer or things like that. When I show up to Amazon to shop again or I show up to another place to shop and my stuff is already preloaded from the last time I bought saying do you want to just buy this product again, the cost of you flipping me out of that product that’s already preloaded in my cart is going to become much more expensive for you as an advertiser. And I belief what the advertising industry is doing now going programmatic, going private market place and having lots more data transparency around those things with the outside trend of it, marketing is probably going to get more expensive not less expensive over time.

The combination of those two things over the next 5 to 10 years will really benefit people in our position who can bring big scale, big content, big data to customers because it’s going to help both sides of that equation out. And it may not be -- I think a lot of people thing programmatic is going to deplete all pricing and those things. I think if you look at those two trends and you look out a few years, it’s likely that big brands and big customers are going to make more money and spend more money.

Eric Sheridan

Yeah. It’s interesting because we’ve talked about this a fair bit in our own research, but could you see a world where remnant inventory continues to suffer from a little bit of deflation, but premium inventory actually sees price inflation because the merger occurs over time of, a brand dollar and a performance marketing dollar as those lines blur in the market place?

Tim Armstrong

Yeah. I think it’s 100% accurate. I was matter of fact on the -- last night I was emailing with one of the CEOs on one of the big holding companies, global holding agency. The holding company’s about doing a deal with us on one of our properties for next year. And in the meantime, one of the major brands in the world came out of the blue and basically said, we would like to actually own that for 2014 and ‘15, you know, going forward.

And if you -- if you listen to the noise in the industry, what you think is the head of the global holding company and the head of a major brand would just be sitting back at their desk saying -- everything’s getting commoditized, I have no reason to pay a premium for everything. I’ll just run all my inventory technology-wide all over everything and doing premiums that across things, you know, don’t matter.

My bet on this property we’re doing this deal on, it will probably be the most highest deal we’ve already done revenue-wise and most significant price increase we’ve ever done which is exactly the opposite of what’s getting said in the industry, a lot right now and from a purely analytical technological reason, those two customers, if they wanted to go out and buy remnant deflating pricing in those thing, they could do it. Neither one of those people would ever put in the agency, the company, multiple brands and a one company standpoint, their one brand would never put those brands up to that remnant risk overall.

And I think quality is going to get more expensive over time. I mean, I was at a meeting in at somebody’s go -- I don’t know, I don’t know if it’s actually true, but I’ll say it and you can do the research. I was at a meeting a couple weeks ago where somebody told me that the global sports rights, there’s $110 billion pre-spent right now on global sports right. And we’ll go back to our theoretical level, instead of pre-spending $110 billion in global sports rights from brands, why not spend $110 billion on remnant inventory across the world? I don’t -- I don’t see customers behaving that way.

Eric Sheridan

Yeah. And sports rights certainly aren’t going down in value. So last one on AOL Networks before turn away from it. I think one of the big decisions you had to make was higher who’s going to run AOL Networks, for the last couple of months. You hired Bob Lord. When we go on the field and talk to advertisers and ad agencies, that is uniformly applauded as an excellent hire by AOL. Can we talk about what Bob brings to the table and how your partnership with him will evolve in terms of running AOL Network?

Tim Armstrong

Sure. This is the 6% solution for our investors as, you know, in having about 6% of the company myself as an individual investor. Every decision I make is from a shareholder perspective. Meaning, my job at the company is to hire the single best people we can possibly have in every single chair. And I, the shareholder want to know that everything we do as a business is benefitting what is the right long-term outcome for the company.

Bob Lord is an executive who ran a company that’s bigger than AOL and he’s had Publicis. He is a technologist background, an engineering degree. He handled most of the major, major brands for Publicis overall globally. He has high EQ, high IQ. He just wrote a book called Convergence, if you want to talk about the future marketing and what people think about marketing, you should read that book.

And I think Bob coming to AOL was singularly for me, one of the biggest assets, you know, that we could bring to the company. And not just Bob, but underneath Bob now, Bob’s management team is full of very strong -- super strong people who understand advertising and networks world, you know, overall. And I think Bob coming is, you know, for our shareholders, is a really big benefit -- it’s a big benefit for everyone at the company. It’s a big benefit for me. And I think that you should expect us a company in basically all the chairs we have to continue to put the best people on every chair that we put.

I think it’s probably my number one job responsibility over all. And I feel really good. I wouldn’t give us high marks for everything we did this year, but you know, having Bob come at AOL Networks, I think is one in the years we’d give high marks.

Eric Sheridan

On that I think, the still least understood areas of the business is membership group. And it’s a much different business now than it was a couple years ago because the team there has really repositioned in around a lot of different marketing efforts. Maybe talk a little bit about that evolution and where membership groups sits today, and then a new product you’re beta testing out a couple markets, is called Gather and what that could mean for membership group going forward.

Tim Armstrong

Yeah. So the highest level membership for us is the ability for us to have commerce, specifically subscription services with our consumer base. AOL has 2.5 million people or so that actually have a commercial relationship with us, so one of the things that people underestimate in brands is whether or not people are used to paying brands. People are used to paying -- excuse me -- AOL.

Starting about two years ago, 2.5 years ago, we started testing, selling things to people again. So we’ve sold hundreds of thousands of new subscriptions to people, which around -- we started with basic things like safety and security or customer service. Those type of things. And then what we decide to do based on that testing was to see if we can actually put together bundled subscription services, just as Amazon has done for e-commerce.

There’s a lot of investment going there, subscription services for people in all kinds of different parts of the internet. So we believe that having a global ID that you can manage multiple subscription services for, was an important thing for us to test. We’ve been testing Gather in a few markets and Gather is essentially 40 different subscription products bundled together. We’ve been testing multiple price points, multiple ways to buy the bundle, pre bundle, bundle on your own.

And the testing right now is going on with that. We’re watching it really closely. We’re having a lot of discussions about it. But our hope and dream, well our hope is that AOL will be able to sell subscription services to people in the future. Our dream -- and I would say it’s a dream, and investors should take it as a dream right now, is that we’d eventually be able to not have declining subscriptions, but growth in subscriptions overall, which should be a meaningful, financial change for the company.

It’s something that we are optimistic about, but cautiously optimistic about because we need to prove it out. I believe we have the right DNA. The team working on it, Bud Rosenthal and his team at AOL doing a really good job on it. And I think that we have a high level of expertise inside the company about targeting, selling and marketing subscription, so you know, I think we’re going to handle this one over a longer period of time. But I think we’re cautiously excited.

Eric Sheridan

Okay. One last topic for me because I open up to the floor. You know, mobile, obviously is a huge issue for the industry. You also -- and -- within a micro cost (ph) in mobile, you just relaunched the MapQuest app. Quite an interesting relaunch, you know, redesigned app, really top to bottom. Talk a little bit about the mobile strategy at AOL and how some of the key daily habit properties around AOL sort of feed into that strategy.

Tim Armstrong

Yeah. So mobile for us is -- has been -- there’s a -- the highest level strategy is to do things in mobile that are multi-screen in nature. So the video thing I talked about earlier, MapQuest pocket and post. We’ve lunched pretty robust products across all of those -- plasma, all the way down to mobile screen.

On mobile and general, our strategy for, you know, the next couple of years without going on super amount of detail is basically to take areas within our business that we know are double to triples. Meaning, if we invest in video, we know it hits mobile also, to continue the scale that quickly.

Second piece is mobile specific areas, MapQuest is a great example of a daily habit that’s highly mobile, to make sure that those products work extremely well. And then the third area is for us to have mobile centric products that are mobile first and in some case, cases mobile only. It doesn’t mean it’s not going to be on other screens, but specifically it’s built for mobile centric distribution.

And going back to my original point when we started is how distribution’s changing. Everybody wants content. A lot of the people I talked about, the Twitters, the Instagram, those things are highly mobile distribution platforms. Thinking about our services in that nature of mobile without going in more details is how we’re thinking about it.

Eric Sheridan

Okay. Let me throw it open to the floor, see if there are any questions. There’s one in the back.

Question-and-Answer Session

Unidentified Analyst

You’ve covered a lot of the initiatives over the past several years that have been great. I’m curious as to whether you have an answer to a question regarding a legacy issue. For young people and business people, there’s been a general migration from AOL mail to Yahoo mail to Gmail. And people are sometimes get blamed as to well, why are you using that AOL email address and whether it’s kids or business people, obviously that migration predates you. But I’d be curious whether you had any thoughts on that issue.

Tim Armstrong

Yes. That’s -- I would -- that issue is a brand issue and it’s a product issue. And I’ll go back to my 6% solution. One of the things that I think is really, really, really important for us in 2014 is to update the AOL product set, core and also the AOL brand. And we have not done a lot of brand marketing, we haven’t spent money on the brand those things. But there’s a set of AOL customers that are very affluent, the AOL customers by the way tend to be the highest household income, most educated and most -- in total affluent out of the major portal sites overall, and we have a very, very, very good audience.

The brand issue you brought up is an issue that from a company perspective we’ve been addressing in two different ways. In a quiet way we’ve been really working on the AOL products to make sure that they are actually feel like they are next generation products which is more work being done over there. Even last night or sorry, two nights ago, we just launched new subversions of the homepage which you can see if you go to AOL.com which look different than they did a week ago. On the mail product, we have a whole bunch of work on mail. So there’s going to be a quite amount of work there going out by a whole bunch of new products coming out on AOL.

The second piece is for us to invest in a whole bunch of other brands that actually a lot of -- a lot of people will say when we meet them, they’ll say, I don’t use AOL, and we’ll say, you probably do use AOL. Do you use TechCrunch, MapQuest [ph], movie phone, Huffington Post and by the end of the meeting they’re like oh, yes, I use three out of your five big brands or something.

So we have a secondary house of brands strategy that people use. But I’m speaking very directly and very honestly the rehab of the AOL brand and AOL products is a very, very, very important project of the company. And it has my full attention and it has my full meeting schedule and those things. And if I’m being correctly critical of us, I think we could be doing -- could have done a faster job in the last couple of years. But we had so many fires to put out. I think now we’re back to growth and laser focused on it.

Eric Sheridan

So may I’ll jump off and ask another question. How do you think with all the initiatives that sits front of you, how do you think about balancing a dollar of capital an OpEx inside the business? You want to grow, you’re coming of certain investment cycles, there’s certain things you want to invest in going forward. So when you look at those array of choices balanced against what Wall Street always wants which is margin improvement and profitability. How do you balance all of those when you think about what your top priorities are for a dollar invested capital going forward?

Tim Armstrong

So I think this is an important topic. And it’s important topic because our investors have gotten a benefit of us acting like a value company but getting back to growth in a very important segments. And I think if you look at the overall tail down of the access [ph] business and some of the other businesses and then you layer in the fact that we’ve been able to get back to growth with some of the newer businesses. Here’s a news flash, the newer businesses we’re in are in some of the most important spaces in the future of the Internet [ph]. You will get video and programmatic, AOL is a strong company and a leader in those spaces. As an investor you want us to invest in those spaces. And the businesses that are more value based that we have you probably will have a more cautious outlook for us on those businesses.

And so, I think we have done a very good job of doing both investing in growth and making sure we’re giving appropriate value back to investors. As of right now that’s our plan, going forward is to continue to do all those things. I would say that is a very hard balance line to walk because operationally we want to have the ability to go for it in a growth businesses and we want to be able to continue to invest and really change the value businesses. But we’ve had a I think a pretty strong covenant with our investors which has been -- we’re going to be transparent about how we’re going to use capital. And I think we’ve done that overall.

I think when you look out at 15, 16, 17 some of those businesses were in the growth business, have the potential to become fairly large. And I think the value businesses could get more successful.

So I think over time, we’re going to continue to manage that line between growth and value and we’re going to continue to do that. I wonder if I’m back here on 15, 16 or 17 with you, whether we have a different conversation. But I don’t think we have clarity on that right now. But I think of the company we’ve gotten used to doing a very good job at value and very good job at growth and that’s our plan going forward.

Eric Sheridan

Got it, okay. I think more in the audience.

So I can follow up one more to that because I think when you did the deal recently Adap [ph] and then you saw the reaction in the market place to both the deal then the good results and the stock is up a lot higher than where it was going into that deal. Does that help you think about some of the choices you might have to make about organic versus inorganic growth to reposition some of these properties going forward?

Tim Armstrong

Yes. I mean, if you think across our three segments of our brands about networks and about the membership segment, I think there’s a lot of places where we added a lot of half [ph] to the company both organically and inorganically. And it’s really important for us from a company stand point that the organic side of the business grows.

So Adap plus ALP and [ph] market place those business should grow together organically, we have to hire engineers and those things. But that’s really a business where there’s a roadmap and we know what we’re doing on. With that brand space you have, Huffington Post, TechCrunch, bunch of properties like that. That’s another area. There’s a lot of organic growth to be done. We should be proud and afford [ph] on those things. In the membership business we are testing gather [ph] which is an organic investment and fixing membership and we should be continue organically grow there.

I think in an opportunistic sand point, like we do with adopt [ph] and don’t take opportunistic as the wrong word, for a year we went around a net with all of video companies. We did organic plans ourselves to grow. And we made the decision that Adap.TV. Was the best for us to build or buy overall. And after 12 months of researching, meeting with companies, meeting with our engineers we made that decision.

So if we’re going to do inorganic things, it’s going to be very precisely targeted. I mean, here’s the net benefit for you as an investor in AOL, there’s no sprain and break [ph] on our stand point. And it actually makes us a more disciplined, the better company that we have finite resources and finite pressure from investors. And I think the chances of us doing something that feel like it’s a shocker I think is low.

And I think that we’ve also -- I think to some degree have a track record of now doing things that are specifically targeted in places where the industry is growing and where our value is. I’m sure people look back when the Huffington Post happen, people may have not have the same reaction. I think when you look at Huffington Post today, people say, oh, I’ve even have investors call and so [ph], I get. I didn’t get it 2.5, three years ago. I get it what you did [ph].

So I think -- we’ll hope to have more of those -- I get a conversation rather than what was that, so.

Eric Sheridan

Great. Well, I think we’re out of time. And I want to really thank Tim for being here today and update us on all things AOL[ph].

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: AOL's CEO Presents at UBS Global Media and Communications Conference (Transcript)
This Transcript
All Transcripts