AOL's short second life as an independent media and online advertising company will end as it's agreed to be bought by Verizon for $4.4 billion, the companies announced Tuesday.
The all-cash deal will give Verizon, a wireless and internet data provider, a digital video and advertising business, along with AOL's expensively acquired news properties like the Huffington Post, Engadget, and TechCrunch.
For Tim Armstrong, the chief executive of AOL who will continue to run the company following the deal, the acquisition provides relief from public market scrutiny that came from trying to run an online advertising and content business smaller than giants like Yahoo, Facebook, or Google. Verizon Chief Executive Officer Lowell McAdams said in a statement the tie-up "supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience."
While Verizon has made its own small efforts in online content and media, it is likely buying AOL more for its business in making online videos and selling ads, especially more expensive video ads and doing ad sales for sites outside of its network of properties.
AOL's display advertising business for sites like AOL.com, Huffington Post, and TechCrunch actually saw its revenue shrink from 2013 to 2014, going down 3% to $593 million, while its "third-party properties" — which include its advertising technology and automated advertising business — grew its revenue 39% to $856 million.
But the fast-growing revenue AOL's advertising technology and marketplace business stands in contrast to meek profitability: The platforms business had negligble profitability, $4.4 million in 2014, even using AOL's preferred metric that backs out numerous costs.
Even AOL's subscription business, which includes dial-up internet, had more revenue than display or search ads ($607 million versus $593 million for display ads and $403 million for search). AOL itself made a big advertising-related acquisition in 2013, when it bought the video advertising marketplace company Adap.tv for more than $400 million.
In an interview with the Wall Street Journal, Armstrong said that the combined AOL and Verizon would be "what I think is the largest mobile and video business in the United States." The $50 per share also provides a nice premium over AOL's closing price of $42.59; the stock only briefly hovered over $50 in the beginning of 2014. The company had $1.9 billion in revenues last year, but only $206 million million in operating profits.