NEW YORK (Reuters) - AOL Inc showed early signs of a recovery as its Internet display advertising rose for the first time in three years.
Display ads, which are big splashy units that appear on web pages, are an important metric for AOL as it reshapes itself into an online media powerhouse and seeks to become less dependent on subscription revenue from its dial-up business.
The company reported on Wednesday that first-quarter display advertising revenue grew 4 percent to $130.5 million thanks to better pricing of ad units and stronger activity from automakers, consumer packaged goods, and telecommunication advertisers.
“It looks like they are starting to turn the corner on revenue,” said Ross Sandler an analyst with RBC Capital Markets.
Investors sent AOL shares as much as 10 percent higher in early trade after the results were released. They later pared gains, but were still up 4.3 percent at $21.28.
AOL, spun out from Time Warner about a year and half ago, has been trying to regain its former luster. Over a decade ago it was one of the Internet’s most popular destination dominated by email.
It suffered from a severe decline in advertising revenue — for instance in the fourth quarter advertising revenue slid almost 30 percent— as Chief Executive Tim Armstrong overhauled the sales force and advertising inventory, while trimming costs.
Since the separation from Time Warner, AOL has been actively gobbling up media-related sites, including a $315 million purchase of the Huffington Post in February.
“It’s the first encouraging quarter since the Time Warner spin,” said Clayton Moran, analyst with the Benchmark Co. “It’s the first evidence they might be able to achieve a turnaround in the advertising business.”
Display advertising in the United States rose 11 percent to $122.0 million, aided in part by the recent acquisitions of the Huffington Post and the popular technology blog TechCrunch.
AOL executives said that those two acquisitions accounted for roughly $5 million in display advertising revenue.
The Huffington Post is on track to hit $50 million in revenue in 2011, said AOL Chief Financial Officer Arthur Minson.
“It is a milestone quarter for us at AOL,” said Armstrong on a conference call. “I think those changes are really paying off.”
“The patient is up and running around,” he said.
Overall advertising revenue fell 11 percent to $313.7 million on declines in search and third-party network advertising.
Total revenue at the company fell 17 percent to $551.4 million. Analysts on average expected total revenue of $536.4 million, according to Thomson Reuters I/B/E/S.
“I like these AOL numbers,” said Laura Martin, an analyst with Needham & Co. “I like the fact that (subscription) churn is lower. It really says the deterioration is slowing it will hold up earnings longer.”
Revenue from dial-up subscriptions dropped 24 percent to $215.4 million.
First-quarter profit fell 86 percent to $4.7 million, or 4 cents per share, compared with $34.7 million, or 39 cents per share, a year ago.
AOL adjusted earnings per share of 22 cents beat the street’s consensus of 19 cents per share.
Reporting by Jennifer Saba in New York and Himank Sharma in Bangalore; Editing by Unnikrishnan Nair, Dave Zimmerman