Starboard Claims AOL Loses $500 Million a Year on Display Ads

By: Mike Fossum - May 25, 2012

In comScore’s latest report regarding the top 50 internet properties in the U.S., AOL came in at #5, with over 110 million unique visitors during the month of April. It’s clear that AOL has maintained a steady audience regarding its collection of sites, regardless of problems with its ad content. The company did report a 5% increase in ad revenue for the year, though subscription revenue was down 15%, which lead to a 4% decrease in revenue for AOL overall.

Still, The Starboard Value LP fund, which has a 5.3% stake in the company, now asserts that AOL is losing roughly $500 million a year in its display ad segment alone. This morning, Starboard asked AOL investors to consider three nominees selected by the firm to add to AOL’s board of directors, when it holds its annual meeting on July 14th. Starboard states that AOL has been unable to “engage constructively with management and the board of directors,” adding, “We believe that AOL is currently losing more than $500 million per year in its Display business alone, masking what otherwise would be a highly profitable company.”

Starboard had insisted that a “clear strategy is delivering improved results,” though AOL wasn’t hearing it, and denied the board nominees, citing its recent performance. The following are key statements from AOL’s SEC filing earlier today.


* AOL has made significant operational and financial progress since spinning off from Time Warner only two and a half years ago.

* AOL has a clear, concise, and publicly communicated growth plan and is on track to meet its strategic goals.

* AOL’s stock is a top performing stock in our industry year-over-year and year-to-date.

* AOL stock is up 166% since its low as a direct result of the action taken by AOL’s management and Board.

* AOL’s Board nominees are diverse and have significant operational, financial and public board experience in AOL’s areas of strategic focus.

* All of AOL’s senior management and directors own stock in the Company and AOL’s Chairman and CEO is the single largest individual investor in the Company.

* Starboard’s slate does not have a long-term strategy or relevant industry experience.


* The Board has unlocked over $1.7 billion in value in the last two years.

* AOL has returned capital to stockholders by buying back 14% of outstanding shares, and has committed to return all of the proceeds of the almost $1.1 billion patent sale to stockholders.

* AOL has reported three consecutive quarters of better than expected earnings results, which demonstrate that the Board’s strategy is working.

* The Board has presided over significant improvement of AOL’s operations and financial results, including reducing annual costs by approximately $500 million prior to investment in areas of strategic focus, reducing headcount by 37%, ending unfavorable distribution deals and exiting unprofitable markets.


* Rather than present a reasoned strategy for driving stockholder value, Starboard has simply criticized AOL’s long-term strategy and investments in content-based assets, and we believe their goal is to break-up and liquidate the company.

* AOL’s Board of Directors is diverse and highly qualified. The AOL Board has significant operational, financial and public board experience.

* On the contrary, we believe Starboard’s nominees would negatively impact the Board’s level of industry expertise, public company experience and diversity.

* AOL is actively engaged in seeking two new Board members, but believes Starboard’s slate will damage the Company and its relationship with advertisers.

* Notwithstanding the negative impact of Starboard’s last four public statements with respect to AOL’s strategy, AOL’s stock hit a 52-week high this week, based on AOL’s operating execution, strategic momentum, and continuing to unlock stockholder value.

It would appear Starboard’s complaints have fallen on deaf ears. AOL shares are up a half a percent today at 14 cents, at $27.75.

About the Author

Mike FossumMike is a writer and videographer based in Lexington, KY. Follow Mike on Twitter and Google+.

View all posts by Mike Fossum
  • jack napoli

    In filing against AOL, Starboard claims they are hq’d in delaware. however their company filings are in the Cayman islands. You can’t have both, UNLESS THEY ARE TAX DODGERS. Now on to more interesting stuff – Jeff Smith, of which there are several who graduated from Wharton, are you sure he graduated from Wharton? and how is it that a Banc of America (notice the spelling) business analyst aka clerk like Peter Feld rises to sit on any board. go start your investigation and stop being dense about people.