May 5, 2011

AOL Releases 1st Quarter Results, Net Profit Down

AOL's first-quarter earnings and online ad revenue fell sharply, but the struggling Internet provider tried to reassure its investors by pointing out an increase in display ad revenue that grew for the first time in more than three years.

AOL's CEO, Tim Armstrong, said the quarter marked a milestone for AOL, but made it clear that the company also has a long road ahead.

AOL acquired The Huffington Post news and opinion site in March for $315 million, and net profit fell 86 percent in the first quarter to $4.7 million -- only 4 cents per share. Its revenue declined 17 percent to $551.4 million.

AOL said its ad revenue would have been flat if not for changes associated with shutting down European businesses and shifting focus away from services with lower profit margins.

The steadily shrinking dial-up Internet service has been trying to boost its online advertising business for years and also beef up its websites as subscribers increasingly abandon the Internet access business that was hugely popular in the 1990s.

AOL said revenue for display ads grew 4 percent to $130.5 million -- the first increase in that sector since the fourth quarter of 2007.

AOL sees display growth as important because it is a segment of online advertising that is poised for major growth for years to come.

However, the company's search and contextual ad revenue fell 21 percent to $95.8 million.

Armstrong is optimistic about the online ad market overall, though, saying it's "more robust" this year than last and that it will keep improving. "The stampede of consumers to digital services has been faster than advertisers' ability to keep up with consumers, so you have a significant pooling of consumers in Internet services and a trickle of advertisers that have been able to keep up with it," he told The Associated Press.

But even if the market grows, AOL's share is expected to remain small, at least for now. Research firm eMarketer expects AOL to hold just 4 percent of the US display ad market by revenue this year. And for all US ads, eMarketer expects AOL's share to be less than 3 percent.

AOL's subscription revenue dropped 24 percent to $215.4 million. The company ended March with 3.6 million dial-up subscribers, down 22 percent from the previous year.

Despite the 11 percent year-on-year increase in US display as revenue, eMarketer expects AOL's ad display share will fall from 4.4 percent this year to 3.7 percent next year.

But Armstrong, in a conference call with financial analysts, said AOL is on the right track.

"Overall, the company's healthy," he said. "As I said last year, we're kind of a recovering patient."

"Now the patient is up and running around and having a good time doing it. This went from a turnaround to a comeback and now we're playing offense," added Armstrong.

"I know AOL's had a long storied history but we're at a point right now of rewriting milestones on a go-forward basis," he said.

In addition to buying The Huffington Post, AOL purchased TechCrunch, a leading Silicon Valley technology blog, in September. Other AOL properties include Engadget, Patch, Moviefone, MapQuest, Black Voices, PopEater, AOL Music, AOL Latino, AutoBlog and StyleList.

AOL, in an effort to cut costs, slashed more than 900 jobs in the first quarter -- 200 employees in the US and more than 700 in India. The cutbacks accounts for almost 20 percent of its 5,000 global employees.

AOL shares were down 2.25 percent at $19.94 in mid-day trading on Wall Street on Wednesday.


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