UPDATE 4-AOL ad sales, strongest in 7 years, boost profit

Tue Nov 6, 2012 4:54pm EST

* Third-quarter EPS 22 cents, beats Wall Street view of 17
cents
    * Total revenue flat, but beats forecast
    * Advertising revenue up 7 percent


    By Jennifer Saba
    Nov 6 (Reuters) - AOL Inc reported
higher-than-expected revenue and profit on the strongest
advertising growth the company has seen in seven years.
    At the same time, the company said its subscription revenue
had its lowest rate of decline in six years. 
   The advertising and subscription trends are helping boost 
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.
    The advertising revenue high mark - up 7 percent to $340
million - comes as AOL pulled in more dollars from search and
from its third party network which includes its successful
platform Ad.com.
    Even so, AOL reported on Tuesday that third quarter total
revenue was flat at $531.7 million, although this was well ahead
of analysts' average estimate of $521.6 million, according to
Thomson Reuters I/B/E/S.
    AOL Chief Executive Tim Armstrong said in an interview with
Reuters that the main focus next year will be on advertising and
video, which tend to command higher prices from marketers.
    Shares of AOL, which have been on a tear, rising 137 percent
year-to-date, closed at $43.70, up 22 percent, on Tuesday after
the company released its third quarter results.
    "Things look great," RBC Capital Markets analyst Andre
Sequin said. "This company is continuing to make steps in the
right direction."
    Throughout the year, Armstrong initiated a number of actions
to help goose shares and shore up the company, including selling
some of its patents to Microsoft for $1 billion and
returning those proceeds to shareholders.
    Still, there are some troubling signs in the results.
    Domestic display advertising, where AOL is making a big
effort and has made splashy acquisitions such as the Huffington
Post, fell 3 percent in the quarter.
    That compares with the overall U.S. display ad market,
estimated to grow more than 20 percent to $14.98 billion this
year, according to research firm eMarketer.
    Google Inc and Facebook Inc will have 
almost 30 percent of total U.S. display ad revenue this year,
while AOL will have about 4 percent, eMarketer estimates. 
    Display advertising includes big, splashy ads on Web pages
favored by brand advertisers. Its third-party network that
includes AOL's Ad.com helps sell ads across other web sites.
These types of ads typically are lower-cost than those ads known
in the industry as premium display.
    "I think while the advertising did perform better at least
for this quarter, much of this is due to search having an easier
comparison," said Ken Sena, an analyst with Evercore.
    Sena noted that some of AOL's premium display ads were sold
through its third party network, which can drive down the cost
of the ad. 
    "We weren't exactly 100 percent drilled and focused on the
advertising strategy the first half of the year. But we are
now," Armstrong said 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."            
   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 earnings per share beat analysts' forecast of 17
cents.
    The company raised its estimate for 2012 adjusted operating
income before depreciation and amortization, or OIBDA, to about
$400 million from $375 million.
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