NEW YORK AOL Inc's AOL.N quarterly revenue fell 26 percent because of steep declines in search and display advertising but its top executive indicated growth could return next year.
AOL shares rose as much as high as 9 percent in morning trade on Wednesday after Chief Executive Tim Armstrong's comments.
"I would hope AOL is growing at industry advertising rates at the second half of 2011," he said on a conference call with analysts.
Armstrong has been trying to turnaround the company, known for its dial-up Internet access business, into an media and entertainment powerhouse.
While AOL's third-quarter profit rose more than expected, it has struggled to boost its ad revenue throughout the year.
"The market reaction is a little surprising to me," said Clayton Moran, an analyst with the Benchmark Co. "(There) is still evidence of meaningful decline in the business and it wasn't significantly better than prior projections.
"I think it's a little bit aggressive to give AOL the benefit of the doubt at this point in time," Moran said.
The steep decline in revenue suggests that the company still needs to attract advertisers willing to spend big on the website. Advertising revenue fell 27 percent to $292.8 million on declines in search, display and third-party ads.
Overall, revenue fell to $563.5 million, compared with the $557 million analysts polled by Thomson Reuters I/B/E/S had expected.
By contrast, far larger web rival Google Inc (GOOG.O) reported a sharp rise in search and display advertising revenue, while Yahoo Inc (YHOO.O) showed stronger display advertising sales.
AOL's subscription revenue also dropped, falling 26 percent to $244.8 million.
Earnings from continuing operations totaled 93 cents a share.
As a stand-alone company, AOL has been immersed in a blur of sales, launches and acquisitions, including purchasing the influential technology blog TechCruch for about $30 million.
The company committed $50 million to build out Patch, a network of local community sites totaling 500 this year.
In recent days it introduced a redesign of its home page where video plays a starring role. The company also released new platform Project Devil that incorporates bigger cleaner ad formats into the site.
AOL's income rose to $171.6 million, or $1.60 per share, helped by asset sales, including its investment in Kayak and its ICQ operations. In the year-earlier period, it posted income of $74 million, or 70 cents a share.
When discontinued operations and other one-time items are taken into account, AOL earned 82 cents a share in the quarter, surpassing the 48 cents a share analysts had expected, according to Thomson Reuters I/B/E/S.
Shares of AOL are up $1.46 to $26.75 in morning trade on the New York Stock Exchange.
(Reporting by Jennifer Saba and Paul Thomasch; Editing by Lisa Von Ahn and Derek Caney)