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AOL Traffic Falls After the HuffPo Deal and Other 10-Q Surprises

Now that AOL has released its first numbers that incorporated Huffington Post, it's time to dive a bit into the associated 10-Q SEC filing. It offers some interesting insights, including the tidbit that after the HuffPo acquisition, traffic was slightly lower, compared to the same quarter of 2010. Guess $315 million doesn't go as far as it used to.

Go away, kid, you bother me
Trying to understand the traffic picture at AOL can make your eyes cross. Numbers from site measurement company Quantcast, which claims direct measurement for, suggest that the site continues on a tear (click to enlarge):

And yet, information from AOL contradicts this. In its 10-Q, AOL states that unique visitors to AOL Properties, which includes the former Huffington Post, is a key management metric.

After the acquisition, AOL created Huffington Post Media Group (HPMG), which runs all content outside of AOL mail, Internet messaging, and AOL Ventures. But when you look at the year-over-year results according to AOL, there's no immediate lift. On the contrary, the number of unique visitors to AOL properties was flat, but the traffic for HPMG was actually down (click to enlarge):

That is an amazing thought. Surely the audiences for HuffPo and the former AOL News were largely separate and distinct, which would mean that a lot of audience members would have walked away. And then there's this statement:

During the second quarter of 2011, we expect that our search and contextual revenues will continue to decline as compared to the same period in 2010, driven by the decline in our domestic AOL-brand access subscribers and lower traffic on AOL Properties.
Given the ever shrinking number of AOL subscribers, you might expect fewer unique users overall. That doesn't necessarily mean that AOL expects HPMG traffic to be off. Nor is it clear whether the 2010 measure of HPMG includes only the AOL traffic or Huffington Post, as well. (I have a call in to AOL but haven't yet heard back.) And none of this seems to square with the Quantcast measurements.

In theory, the consolidation of AOL's sites, with many being folded into Huffington Post equivalents, might have led to disaffection among audiences, which could account for the lower number of visitors.

Although there is that significant spike in the Quantcast graph (and a similar one in's traffic estimates for, given the timing, it's likely tied to the royal wedding -- a phrase one might otherwise hope never to see in tech coverage. We live and learn.

The spike will make it difficult to assess HPMG traffic over the next couple of quarters. The second quarter will have that outsized jump averaged in over three months, which will make that part of AOL look as though it's really taken off, even if the reason is a singular event. The third quarter will look anemic in comparison.

One large problem with trying to understand the traffic is that AOL relies on others to measure it for them:

The source for our unique visitor information is a third party (comScore Media Metrix, or "Media Metrix"). While we are familiar with the general methodologies and processes that Media Metrix uses in estimating unique visitors, we have not performed independent testing or validation of Media Metrix's data collection systems or proprietary statistical models, and therefore we can provide no assurance as to the accuracy of the information that Media Metrix provides.
In other words, the traffic may be what the company states or more or less, and management has no way to know.

Speaking of surprises
The traffic numbers weren't the only interesting information in the 10-Q. Cost of revenue, which includes traffic acquisition cost (for traffic directed from third parties), network-related costs, and product development, took a big jump.

In the first quarter of 2010, they represented 55 percent of revenue. This year, they were 71 percent. The big reason for the jump was personnel costs, which jumped by $37.5 million, including salaries and bonuses.

That amount split into two parts: inventive compensation of $7.5 million for the acquisition, and $32.3 million in new employee hires. HPMG has said that it's heavily hiring full-time staff rather than using freelancers. Clearly so. Given the drastic increase in cost of revenue, it seems reasonably that management will want the newly hired to become frighteningly productive to make up for the expense.

One other nugget comes from comparing the $315 million price AOL paid for Huffington Post, and the "purchase price of $295.9 million, net of cash acquired." The difference suggests that HuffPo came with $19.1 million in cash.

Oh, and for those who wondered about the people at HuffPo who had asked for and received stock options -- those were apparently paid by AOL, so it was an extra portion of the purchase price that Arianna Huffington and her partners and investors could keep.


Image: Flickr user ogimogi, CC 2.0.
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