AOL ad sales boost third quarter profits

AOL Inc reported higher-than-expected revenue and profit on the strongest advertising growth the company has seen in seven years.

AOL said on Tuesday that third-quarter revenue was flat at $531.7 million, ahead of the analysts' average estimate of $521.6 million, according to Thomson Reuters I/B/E/S.

Advertising revenue rose 7 per cent to $340 million, while subscription revenue for AOL's dial-up services fell 10 per cent to $173.5 million.

Subscription revenue had its lowest rate of decline in six years.

These trends are helping AOL since its turnaround hinges on the success of getting more online advertising dollars and reducing its reliance on the lucrative but moribund dial-up business.

"Things look great," RBC Capital Markets analyst Andre Sequin said. "This company is continuing to make steps in the right direction."

Still, there are troubling signs in the results. Domestic display advertising, where AOL is making a big effort, including with splashy acquisitions such as the Huffington Post, fell 3 per cent in the quarter.

That compares with the overall US display ad market estimated to grow more than 20 per cent to $14.98 billion, according to research firm eMarketer.

AOL's advertising revenue was lifted by search revenue and double-digit growth in third-party network revenue.

Display ads are big, pricey units on Web pages favored by brand advertisers. Third-party network consists of AOL's Ad.com, which helps sell ads across other properties. These types of ads usually command lower prices than display-ad units.

"We weren't exactly 100 per cent drilled and focused on the advertising strategy the first half of the year. But we are now," said AOL Chief Executive Tim Armstrong on a call with analysts.

"I think overall, what you're going to see is an operational improvement around advertising as we get into 2013."

The company, however, has taken a number of steps over the year, including selling some of its patents to Microsoft for $1 billion and returning those proceeds to shareholders.

Net income was $20.8 million, or 22 cents per share, compared with a year-earlier loss of $2.6 million, or 2 cents per share.

AOL's third-quarter EPS of 22 cents was well ahead of analysts' forecast of 17 cents.

The company raised its estimate for 2012 adjusted OIBDA to about $400 million from $375 million.