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TheStreet Open House

AOL Earnings: What Wall Street’s Saying

NEW YORK ( TheStreet) -- Digital media company AOL  (AOL) reported better-than-expected second-quarter earnings, driven by its increased investment in the programmatic advertising space.

New York-based AOL increased sales in the automatic and real-time ad-buying business 100% year over year, a major factor in the 20% jump in global advertising revenue recorded over the quarter.

"Advertisers aren't saying they want to spend less, they want better ROI, and better targeting. And we've done an exceptional job [providing that]," CEO Tim Armstrong said of the programmatic offering's success in a post-earnings conference call.

Read More: AOL's Programmatic Play Pushes Second-Quarter Growth

It appears AOL is at a critical juncture as it begins to see returns on investment in new digital advertising services while competing against Yahoo! (YHOO) and Google (GOOGL) which are doing likewise. Here's what analysts have to say of the company's future.

JMP Securities (Market Perform, PT $55 from $53)

"AOL has invested heavily in premium ad formats, video, and its programmatic offerings over the past several years and we believe the company is now beginning to see the return on these investments. Pricing was up double digits, organic display grew 9%, AOL's core DSP and SSP platforms once again grew in excess of 100%, and cross-platform usage rose 18%, to 171 million unique visitors. Importantly, we believe these trends are sustainable.

"We now project 2014E gross revenue of $2.55 billion, net revenue of $1.85 billion, and EBITDA of $523 million."

Deutsche Bank (Buy, PT $46 from $42)

"The bull case on AOL following the run-up from patent deal has been around stable topline and improving margins, and while the latter was in question over the past 6 months, 2Q results put AOL back on track. The company reported revenue inline and OIBDA 10% above our estimate, and importantly, Brand AOL margin increased 610bps Q/Q to an all-time record levels for a nonseasonal quarter. In terms of guidance, AOL sees upside to its original $500m OIBDA guidance in 2014."

UBS (Buy, PT $50)

"We were most positive on: a) sales & margin beats led by the key growth areas of AOL Platforms ($17mm sales beat) & Brand Group ($7mm EBITDA beat); b) continued traction with programmatic advertising products (Adap.tv growing 60%+ YoY, AOP & MARKETPLACE growing 100%+ YoY); c) strong audience growth for AOL's core & branded sites (+18% YoY on U.S. desktop & mobile - fastest among top 5 U.S. Internet properties); d) $59mm of buybacks in Q2 and new $150mm authorization; & e) new commentary that cash taxes will be immaterial through YE 2015."

Read More: Jeff Bewkes Flexes Muscles as Rupert Murdoch Tries to Save Face

Credit Suisse (Neutral, PT $44 from $42)

"Adtech platform continues benefit from the rapid growth in its programmatic business via burgeoning initiatives such as AOL One and recently acquired Adap.tv. Existing advertiser relationships from its legacy business and a focus on premium inventory have to a large extent insulated the company from transitory headwinds experienced by other adtech platforms this quarter. We maintain our Neutral rating due to valuation."

Cantor Fitzgerald (Buy, PT $50)

"Our upgrade to BUY is predicated on AOL's focus on non-commoditized areas of the marketplace, which has led to 1) faster growth in Networks (driven by Video and Programmatic) and 2) improved pricing trends in branded Display (unlike for Yahoo!)."

"While much work remains, we believe that improving fundamentals, including a growing multi-platform user base, and a bigger buyback should continue to drive the stock higher over time."

Wells Fargo (Outperform, PT $55-$57)

"We remain bullish on AOL's programmatic offering as we believe advertisers not yet fully invested in programmatic execution will be attracted to AOL's full stack offering and ability to complement programmatic execution with premium, reserved creative units and inventory. Video provided pricing and programmatic mix tailwind, though mgmt noted pricing stability (even growth) in standard premium units as well. With 34% of non-search ad revenues now programmatic, we see signs that AOL is deftly navigating channel conflict issues bedeviling some publishers. We believe AOL remains well-positioned to emerge as one of few scaled players across a consolidating ad tech landscape."

-- Written by Keris Alison Lahiff in New York.

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