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 Keach.Hagey@wsj.com
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