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AOL net profit down, display ad revenue increases

by Staff Writers
Washington (AFP) May 4, 2011
AOL's quarterly net profit fell sharply but the Internet company pointed to an increase in display advertising revenue as evidence that its turnaround plan is beginning to pay off.

AOL, which bought The Huffington Post news and opinion website in March for $315 million, said Wednesday that its net profit fell 86 percent in the first quarter to $4.7 million, or four cents per share.

Revenue declined 17 percent to $551.4 million.

Subscription revenue from AOL's steadily shrinking dial-up Internet service dropped 24 percent to $215.4 million and overall advertising revenue fell 11 percent to $313.7 million.

Search and contextual ad revenue was down 21 percent to $95.8 million but display ad revenue gained four percent to $130.5 million and was up 11 percent in the United States.

AOL chief executive Tim Armstrong, the former Google executive who was brought in two years ago to turn around a struggling AOL, highlighted the increase in display ad revenue, which includes banners, rich media and video.

"Today represents an important milestone in the turnaround of AOL as global display revenue grew for the first time since the fourth quarter of 2007," Amrstrong said in a statement.

"I am proud of the work completed thus far and we remain focused on accelerating our momentum through continued execution of our strategy to become the premier digital content company," Armstrong said.

Despite the 11 percent year-on-year increase in US display ad revenue, eMarketer said Wednesday that AOL's share of the $10.1 billion US market for display ads will fall from 4.4 percent this year to 3.7 percent next year.

Google's share of US display ad revenue is forecast to increase from 12.6 percent this year to 16.7 percent next year while Facebook's is forecast to rise from 21.6 percent this year to 23.8 percent next year.

The other major display ad player -- Yahoo! -- is expected to see its share of US display ad revenue fall to 16.3 percent next year from 16.4 percent this year.

Armstrong, in a conference call with financial analysts, said AOL is on the right track.

"Overall, the company's healthy," he said. "As I said last year, we're kind of a recovering patient.

"Now the patient is up and running around and having a good time doing it," he said. "This went from a turnaround to a comeback and now we're playing offense.

"I know AOL's had a long storied history but we're at a point right now of rewriting milestones on a go-forward basis," said Armstrong, who has made a number of high-profile moves since joining AOL.

In addition to buying The Huffington Post in March, AOL purchased TechCrunch, a leading Silicon Valley technology blog, in September.

Other AOL properties include Engadget, Patch, Moviefone, MapQuest, Black Voices, PopEater, AOL Music, AOL Latino, AutoBlog and StyleList.

AOL has invested heavily in Patch, which provides local news in hundreds of communities across the United States, but the company said Wednesday it did not expect Patch to be profitable next year.

Armstrong has also sought to cut costs and AOL slashed more than 900 jobs in the first quarter -- 200 employees in the United States and over 700 in India -- nearly 20 percent of its 5,000-strong global workforce.

AOL, formerly known as America Online, fused with news and entertainment giant Time Warner in 2001 at the height of the dotcom boom in what is considered one of the most disastrous mergers ever.

It was spun off by Time Warner in December 2009 into an independent company.

AOL shares were down 2.25 percent at $19.94 in mid-day trading on Wall Street on Wednesday.

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