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AOL -7.8% on EPS miss; $101M acquisition announced

  • Along with its Q1 results, AOL announces it's buying Convertro, provider of an ad tech platform that uses algorithms to measure ad views/conversions across multiple channels. AOL is paying $89M in cash + $2M in converted stock awards + $10M in earn-out payments.
  • The deal follows last year's acquisition of online video ad platform Adap.tv, and bolsters AOL's efforts to be a top ad network/tech provider for the burgeoning programmatic ad market. It also comes a day after Google announced it's buying Convertro peer Adometry.
  • Shares are lower in response to AOL's Q1 EPS miss and disappointment with the company's display ad (-3% Y/Y vs. +6% in Q4) and search ad (-1% vs. +5%) sales. AOL attributes the former decline to a $10M hit from "shuttered or de-emphasized brands," including Patch. The latter is blamed on a decline in core search queries. Third-party ad platform revenue, boosted by Adap.tv, rose 55% vs. 30%.
  • Subscription (dial-up ISP) revenue fell 10% Y/Y vs. 8%. Subscribers fell 9% Y/Y; churn was 1.5% vs. 1.3% in Q4 and 1.9% a year ago, and ARPU fell to $19.41 from $20.01 in Q4.
  • Adjusted OIBDA only grew 2% Y/Y to $107.3M, after growing 19% in Q4. Free cash flow was -$10.5M vs. $9.8M a year ago.
  • Q1 results, PR
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