AOL beats expectations, shows profit for quarter

Stock rises on better than expected numbers to highest value since 2009

AOL, as I’m sure we all remember, was once the Internet king. In the mid-90s, everyone had AOL. Yet, it seems like the past decade was nothing but trouble for the company, with its most notable failure being its ill-fated team up with Time Warner. But, after seeing declines for so many straight years, could AOL finally be making a comeback?

After announcing Wednesday quarterly earnings that beat expectations, AOL shares hit their highest level since the company split from Time Warner in 2009. Shares of AOL rose 7% to $29.48, in Wednesday trading.

AOL’s net income for the quarter was $970.8 million, or $10.17 per share. This compares to a loss of $11.8 million, in the year-ago quarter. 

The increase in profit was due to patents AOL sold to Microsoft earlier this year, which brought in over $1 billion dollars to the company. 

Still even excluding one-time items, such as the gain from the Microsoft patent sale, AOL would have earned 23 cents a share, while analysts surveyed by Thomson Reuters had forecast AOL to earn 10 cents a share. 

AOL saw $531.1 million in revenue in the second quarter of 2012, down from $542.2 million in the same quarter last year, beating analyst expectations of $519 million in income.

The 2% decline in revenue was the lowest rate of decline that AOL has seen in seven years. 

“Today’s results represent a significant milestone for AOL as we returned to Adjusted OIBDA growth for the first time in four years," Tim Armstrong, Chairman and CEO of AOL, said in a press release. 

“The strong results and consumer performance we announced today are clear signs our strategic and operating efforts are translating into significant financial progress.”

Global advertising revenue grew 6% from last year, the fifth straight quarter of growth, $337.8 million up from $319 million in 2011.

Video revenue and views grew at double-digit rates from year to year, while video ad impressions grew at triple digits. In April, AOL launched a new video site called AOL On Network to bring all of AOL's original content, from Huffington Post and AOL.com to Engadget and Tech Crunch, to one platform.

AOL also saw Patch more than doubled its traffic from the same quarter last year. Patch is AOL's attempt to provide a local news service, and Armstrong has been adamant that the service will make money, despite speculation that the company lost $100 million on Patch in 2011.

While AOL saw growth in numerous areas, it also saw its display advertising in the United States remain flat year-to-year, which Armstrong lamented as a failure on the company’s part.

“We should be a growth company in display advertising,” Armstrong said in a call with reporters.  “We should be doing a better job at it.”

Even more pressing than that, however, was a drop of 13% from subscription revenue, from $201.3 million in 2011 to $175.5 million this quarter.

The average age of an AOL's user  is 40 years old, the oldest on the Internet. Around 75% of Gmail users are under 34. That number is over 50% for Yahoo.  For AOL it is only 42%. 

AOL's subcription service represents one-third of AOL’s total revenue, and it will be a major blow if revenue in this area continues to decline.

As a result of the better than expected numbers, AOL stock was up over 7% on Wednesday, hitting $29.48, its highest value since AOL began trading shares after its split with Time Warner in November 2009.

AOL stock has nearly doubled from $15.13 at the beginning of the year.

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