* Q1 EPS 22 cents vs Wall St view 7 cents
* All patent sale proceeds to go to shareholders
* Shares jump 3.6 pct in morning trade
By Jennifer Saba
May 9 AOL Inc reported
better-than-expected quarterly results and said it intends to
hand over to shareholders 100 percent of the proceeds from its
patent sales to Microsoft.
Earnings blew past Wall Street forecasts, and revenue topped
estimates despite lower premium ad sales in the United States.
AOL shares rose 3.6 percent to $26.52 in morning trading on
the New York Stock Exchange on Wednesday after the results.
Needham & Co analyst Laura Martin described the quarter as
"awesome," citing the shareholder return among one of the
One cloud hung over the results, however. Display
advertising - big splashy ads on Web pages that command high
prices, an area where AOL is making a huge bet - hit a hurdle in
the United States, where revenue fell 1 percent.
"I wasn't surprised that much," Benchmark analyst Clayton
Moran said of the display ad revenue. "We saw similar weakness
from Facebook and Yahoo.
"It could be an industry thing or that Google is gaining so
much (ad revenue) share that other parties are losing."
Late in April, Facebook reported its first
quarter-to-quarter revenue drop in at least two years, blaming
seasonal advertising trends.
"I was not happy with the domestic display over the course
of the first quarter," AOL Chief Executive Tim Armstrong said on
a conference call. "A lot of it was a sales strategy off tune."
AOL expects domestic advertising revenue to return to growth
in the second half of the year.
Meanwhile, Pando Daily reported that AOL is seeking a buyer
for two of its most high profile sites, TechCrunch and Engadget,
Armstrong said it was "100 percent untrue" in an interview
Since its spinoff from Time Warner in 2009, AOL has
been attempting to transform itself into a media destination
dependent on advertising revenue, while at the same time winding
down its lucrative dial-up service.
The company has snapped up a host of high-profile media
properties, like the Huffington Post and TechCrunch, and has
poured millions of dollars into a network of neighborhood news
sites called Patch.
Patch has been a lightning rod for AOL -- the company has
spent about $150 million on the effort so far -- and investors
are eager to see it turn a profit.
AOL executives said on the call that the company expects
Patch to be profitable in 2013 and that it should generate $40
million to $50 million in revenue this year.
First-quarter net income rose to $21 million, or 22 cents
per share, from $4.7 million, or 4 cents per share, a year
earlier. That was well above analysts' EPS forecast of 7 cents,
according to Thomson Reuters I/B/E/S.
Revenue fell 4 percent to $529.4 million but beat analysts'
average estimate of $526.5 million.
RETURN TO SHAREHOLDERS, LOOMING PROXY FIGHT
In April, AOL agreed to sell the majority of its patents to
Microsoft Corp for about $1 billion. Microsoft is
selling the patents to Facebook.
AOL executives said on the call that the company intends to
pass on 100 percent of those proceeds to shareholders. When the
sale was announced, the company said it expected to turn over "a
majority" of the proceeds to investors in a combination of a
share buyback and dividend.
The change comes as AOL faces a looming proxy fight with one
of its largest shareholders, activist hedge fund Starboard
Value. Starboard contends that AOL is not doing enough to return
value to shareholders and has nominated three directors to the
AOL board. One point that Starboard has been pushing for is a
100 percent return of the patent proceeds to shareholders.
Armstrong said on Wednesday that turning over all patent
sale proceeds to shareholders likely will not dissuade Starboard
from agitating for board seats at AOL's shareholder meeting in
"A resolution (of the dispute) would be great. I don't see
any resolution on the horizon right now," he said.