UPDATE: AOL Reports 2Q Profit, Lowest Revenue Decline In Years

   By Keach Hagey and Mia Lamar 
 

AOL Inc. (AOL) reported its lowest rate of revenue decline in seven years, as the contraction associated with its legacy Internet subscription business slowed in the second quarter and advertising sales rose for the fifth-straight quarter.

On the bottom-line, the Internet company swung to an easy profit in the second quarter, thanks to its $1.1 billion patent deal with Microsoft Corp. (MSFT).

AOL said its global advertising revenue grew 6%. Domestic display advertising, however, which is the heart of AOL Chief Executive Tim Armstrong's strategy to transform the company into a online content giant, was flat at $126.8 million--but still improved from declines in the first quarter.

Advertising gains came from a 21% year-over-year rise in international display advertising and a 19% increase in third-party network, offset by a 13% decline in subscription revenue and 1% drop in search and contextual ads. Churn, or the percentage of customers canceling services, fell to 1.7% from 2.2% a year earlier.

Total revenue slipped 2% to $531.1 million but came in above the average analyst estimate of $519 million, according to a poll conducted by Thomson Reuters.

AOL's profit was $970.8 million, or $10.17 a share, up from a year-earlier loss of $11.8 million, or 11 cents a share. The latest period included a $945.8 million gain on the sale of patents, among other items. Analysts, on average, were looking for earnings of 10 cents a share, according to Thomson Reuters.

In April, AOL said it would sell more than 800 patents--relating to technologies ranging from online advertising to mobile handsets--to Microsoft while licensing roughly another 300. The company has pledged to return all of that to shareholders by the end of the year, and announced a $400 million stock buyback program on June 28th to begin that process.

The deal was seen as potentially relieving pressure on the Internet company's management as it faced calls from investors for more progress on turnaround efforts. Boosting ad dollars has been front and center in those efforts as AOL works to refashion itself into an ad-driven digital media company.

AOL shares, up 82% since the start of the year, rose 4% to $28.60 in light premarket trading.

-Write to Keach Hagey at [e-mail]

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