After shares of the New York-based company plummeted three months ago when Armstrong declared 2015 to be an "investment year," the stock was rebounding Friday as sales from its automated advertising platform boosted first-quarter revenue and profits that handily beat analyst forecasts. AOL climbed 10% on Friday to $43.42, cutting its 2015 loss to 6%.
Revenue for the three-month period ended March 31 was $625 million, a 7.2% increase above the same period a year ago, while profit adjusted for some expenses was 34 cents a share, matching the average estimate from analysts of 32 cents, according to a Bloomberg survey.
But the big takeaway for investors was that Armstrong's big bet on automated or so-called programmatic advertising -- somewhere north of $750 million over the past three years -- is beginning to show the type of growth that the CEO, a one-time Google (GOOG) advertising executive, has long promised. Sales related to AOL's programmatic platform jumped 80% while accounting for 45% of its overall brand advertising revenue.
"The market, our products and our results are lining up," Armstrong said in a phone interview. "This quarter a fog is lifted off of AOL because you can really clearly see that the investments that we've made in programmatic and in video is really paying off."
Revenue at AOL platforms, including programmatic advertising, surged 21% to $279.8 million. Advertising sales from properties that include The Huffington Post and TechCrunch grew 12% to $483.5 million, also beat estimates.
AOL's automated advertising unit, recently branded as ONE by AOL, allows marketers and publishers to buy and sell ads in real time across thousands of Web sites and increasingly on television. The platform, which uses sophisticated computer software, is one half of AOL's two-pronged strategy to act as a conduit for marketers while also selling digital ad space on its own Web sites.
"Better-than-expected first-quarter results show that AOL is making good progress on its transition to becoming the home of more programmatic, video and global platforms," Youssef Squali, a media analyst at Cantor Fitzgerald, wrote in an investor note on Friday.
Under Bob Lord, who came to AOL from the Publicis Group (PUBGY), AOL is seeking to become the go-to place for matching advertisers and video publishers. Lord currently oversees a platform that combines earlier acquisitions of
Advertising.com and Adap.TV, among other technologies, with the purchase late last year of the video-syndication startup Vidible.
While the platform has been operational for more than a year, Armstrong said that only in more recent quarters have marketers and Web site publishers begun to feel more comfortable with the notion of allowing more of their money and inventory to be exchanged automatically through computers, rather than phone calls and fax machines.
"We had a vision a few years ago that the mechanization of Madison Avenue would eventually take shape," Armstrong said. "Just like it happened on Wall Street, just like it happened in the travel industry, it was going to happen in advertising. We really did spend three to four years building a very robust stack of products and technology to meet that vision."
Digital advertising purchased through programmatic platforms is expected to grow at an average annual growth rate of 27% through 2018, reaching $53 billion, according to Magna Global, the ad buying and research division of IPG Mediabrands.