AOL earnings reports tell history of Patch since 2009

Praise for Patch played a modest part in AOL’s first-quarter earnings report released today, but for journalists interested in the growing network of hyperlocal news sites, it was an important part. Among the trends noted by the report: “Patch grew traffic and advertisers over 40% year-over-year and revenue over 100% year-over-year.”

A Patch spokesperson broke out those numbers for me: 55 percent year-over-year growth from March 2011 to March 2012. (Patch doesn’t break out traffic for individual sites.) Patch is “seeing significant traction in all revenue areas,” she writes in an email, including strictly local ads, regional ads, and national ads aimed at a local audience.

For such an extensive operation, though, the actual journalism produced by Patch rarely gets praise. That’s partly because of the intensely local focus of Patch’s stories, but it also might not matter much: As Ben Elowitz wrote Monday, “advertisers don’t pay to reach content. They pay to reach an audience.” If Patch can deliver an audience, maybe it’ll avoid some of the rampant skepticism about the enterprise. AOL honcho Tim Armstrong, who founded Patch, said in a conference call Monday that domestic display ad sales at all AOL properties, not just Patch, were down in part because of a campaign by a group of renegade investors who don’t believe in AOL’s content strategy: The questioning “hasn’t been helpful to us having these questions raised about our content business. Major customers don’t put major investments in when they think things are unstable.”

Armstrong issued a full-throated defense of Patch in March, telling a group of investors, “Patch may be a longer-term investment, but I think it can be significantly valuable.”

It’s certainly become a more valuable part of the company’s quarterly earnings releases. Herewith, a compilation of the company’s statements about Patch:

Q4, 2009: No Patch performance mention in the earnings release, just some financial housekeeping.

On January 29, 2010, we issued approximately 173,000 shares of AOL common stock to Polar Capital Group, LLC, in partial satisfaction of our contractual obligation to return our CEO’s initial investment of approximately $4.5 million in Patch Media Corporation (“Patch”), which arose from our acquisition of Patch on June 10, 2009.

Q1, 2010: No mention of Patch.

Q2, 2010: Patch gets eight words: “expanded Patch into 83 towns from 44 towns.”

Q3, 2010: Seven words: “rapidly expanding Patch into 133 new towns.”

Q4, 2010: Patch begins to acquire more real estate in the earnings releases, too: “expanding Patch into 559 towns to end 2010 in 775 towns,” plus, “Operating expenses increased $32.3 million versus Q3 2010, reflecting increased investment in Patch and additional expenses related to recent acquisitions.”

Q1, 2011: This is the quarter that includes AOL’s purchase of The Huffington Post. “Patch grew users rapidly year-over-year and sequentially according to comScore” is the first bit of reported good news about Patch traffic in an AOL earnings report release. And the second notice that the growing Patch is impacting profitability: “Net income and Adjusted OIBDA declines reflect the decline in revenue, increased investment in Patch, $9 million of transaction-related expenses primarily related to the goviral and The Huffington Post acquisitions and $8.4 million in incentive compensation expense related to acquisitions made in 2010 and in Q1 2011.”

On the subsequent earnings call, CFO Artie Minson says, “Overall, Patch won’t be profitable next year.”

Related coverage: “Hot Damn, AOL Is Making One Big, Expensive Bet on Patch” (Forbes)

Q2, 2011: “In local, Patch entered 44 additional towns to end Q2 in 846 towns.” Staffing those Patches is again addressed in the “Profitability” section of the release: “Costs of revenues reflect increased personnel costs due primarily to increased investment in Patch and other areas of strategic focus including acquisitions made in 2010 and particularly in Q1 2011.” But display advertising is up, partly due to Patch: “The increase in display revenue also reflects improved yield management, performance- based fees related to marketing of third party products and services and an increase in Patch revenues.”

Q3, 2011: Patch is growing: “In local, Patch surpassed 10 million monthly unique visitors and 10,000 bloggers on its platform while
launching a new self service advertising product and deal of the day offering, Patch Deals.” (Patch Deals is now mostly empty; I found one deal on the whole site, and it wasn’t local to any of the Patches.) Patch’s revenue is increasing: “The increase in display revenue also reflects improved yield management, an increase in Patch revenue and performance-based fees related to marketing of third party products and services.” And Patch again makes the “Profitability” section: “While declining sequentially, costs of revenues grew year-over-year reflecting continued investment in Patch and other areas of strategic focus including acquisitions made late in 2010 and early in 2011.”

Q4, 2011: Patch traffic is up: “Local: Patch grew traffic, advertisers and ad impressions over 100% year-over-year.” It’s contributing to revenue: “Growth in display revenue also reflects an increase in Patch revenue and performance-based fees related to marketing of third party products and services.”

Q1, 2012: “Local: Patch grew traffic and advertisers over 40% year-over-year and revenue over 100% year-over-year.” Patch helped with a dip in display revenue: “Domestic display advertising revenue declined primarily reflecting a decline in reserved impressions sold, partially offset by growth in reserved inventory pricing and Patch revenue.”

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  • Anonymous

    I’m not sure about how well maintained the other Patch sites are, but I just looked over the front page of the Roswell, Georgia page and found this timely piece of information:
    “Weather Watch: A Little Snow Heading Georgia’s Way?
    There’s a chance parts of Georgia will see the white stuff over the next 48 hours, according to The Weather Channel.
    By Patch Staff
    November 27, 2011″
    That story would be more interesting if not for the minor problem that today is May 23, 2012…

  • Anonymous

    I’m not sure about how well maintained the other Patch sites are, but I just looked over the front page of the Roswell, Georgia page and found this timely piece of information:
    “Weather Watch: A Little Snow Heading Georgia’s Way?
    There’s a chance parts of Georgia will see the white stuff over the next 48 hours, according to The Weather Channel.
    By Patch Staff
    November 27, 2011″
    That story would be more interesting if not for the minor problem that today is May 23, 2012…

  • http://pulse.yahoo.com/_GL5DTNBCBJAKN33LTMEVVJB7YY Dawn

    Armstrong has given every excuse over the last couple of years for Patch being short of the mark on advertising revenue. Now, he’s jumped the shark by blaming the people who have been questioning why it’s always coming up short for it coming up short. This is the most ridiculous thing I’ve ever heard a CEO say.