- Total revenue was up a decent 6%, with global ad dollars rising 14% year-over-year.
- Third-party network revenues, which included the flagship Advertising.com, were up 32%, thanks to higher-CPM video ads. Adap.tv's contribution amounted to $17.6 million, as the deal closed only on Sept. 5.
- Not counting Adap.tv, the network revenues grew a more than respectable 17%, suggesting that without Adap.tv, AOL was holding steady, as third-party network revenues grew 18% in Q3 2012.
- Higher prices pushed global display dollars up 5%.
- Adap.tv grew about 100% on a pro forma basis, and was "slightly profitable" in the quarter, said CFO Karen Dykstra.
- Search remains lackluster, but with 3% gains globally, at least it's not falling back.
The news is generally good for AOL coming off the much-hyped "Programmatic Upfront" last month, which Armstrong noted included 650 media buyers from all the major ad holding companies (excluding WPP Group). The numbers help validate the company's ad strategy around automation in general and video in particular.
As AOL continues to wrestle with its legacy business as a dial-up Internet service provider -- subscription revenue fell 7%, suggesting the declines are slowing -- it is still hobbled by its experiment in local content, Patch, which was scaled back significantly during Q3.
Dykstra warned about "difficult comps" in Q4 regarding expenses during the holiday season.
But the big story over the near term is how AOL has built its video operations starting with the purchase of video ad network 5min three years ago, culminating in the addition of Adap.tv.
"Video has been a multiyear investment and Adap.tv helps complete the building of our video pyramid," Armstrong said. "After researching companies in the space, we turned to Adap.tv for three reasons: their leadership as a marketplace, the simplicity and strength of their strategy and the value of its position as a network-affect platform."
Ad pricing was up 4% and the AdLearn Open Platform, its demand-side platform, grew 50%, while its Marketplace supply-side platform signed up 30,000 advertisers to bid in the marketplace, Armstrong said.
On pricing, Armstrong pointed to 80% growth in the "premium formats business," though it was unclear how much of that is driven by the Project Devil ads, which were such an important part of its display strategy the last few years. "We are planning on increasing the volume of ads we serve over the next year," Armstrong said.
He added later during the call that he had no crystal ball on price trends. "If you let everything run loose in a marketplace, that's not something we do in our approach to programmatic," Armstrong said. "Putting more premium video into places that are more commoditized, like banners, we know that we can do well there. Brands will pay more to be around quality content. That's important to us and we have a strategy around yield management. We're going to stick with that."
During the Q&A, Armstrong was asked where the lowest-hanging fruit was -- broadcast TV or print? Armstrong pointed to the deal that was struck last spring during the NewFronts with media-buying software provider Mediaocean, which puts AOL "on the screens of TV buyers, giving us the pipes to connect TV and online." However, he made no grand claims about TV dollars shifting to online in a vast wave anytime soon.
Dykstra promised continued investment in Adap.tv, noting that Adap.tv has hired 25 people since the deal closed and is looking to fill 25 more positions. As for profitability of that video unit, Dykstra predicted another "slight profit" in Q4 going into 2014.
Citigroup analyst Mark May asked if Ad.com represented "a noose" around AOL's neck, despite the growth this past quarter.
"Ad.com was struggling a few years ago, but a few simple movements allowed it to grow, such as unlocking the technology to include more open, programmatic formats," Armstrong responded. "Moving traditional customers, like the publishers in the network, to programmatic has helped. Also, Ad.com has strong machine-learning capabilities to understand the value of an impression is critical and something we're continuing to invest in. Adap.tv should also benefit from the Ad.com customer base."
Armstrong was pressed for some specifics on what sort of spending commitments were made by the media buyers attending the Programmatic Upfront, but he declined to provide details. As Armstrong and AOL Networks CEO Bob Lord announced during that presentation, starting next year, AOL will make its reserved, guaranteed inventory available through its automated platforms for the first time.