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The Associated Press May 2, 2011, 3:39PM ET

Earnings Preview: AOL to issue 1Q results

Internet company AOL Inc. is slated to report its first-quarter results on Wednesday morning before the market opens.

WHAT TO WATCH FOR: Signs that AOL's turnaround strategy is working.

Since splitting from Time Warner Inc. in late 2009, AOL has been working to revitalize its business by doing things like selling off unprofitable businesses, acquiring others, rolling out new and revamped websites, revealing a new Web advertising system and laying off employees. In the first quarter, this included the purchase of news hub The Huffington Post for $315 million and the announcement that AOL would receive its health, sports and real estate content from three outside companies.

One indicator that the company's efforts are catching hold would be growth in its online advertising business and traffic to its websites. AOL makes much of its revenue from online ads, having shifted to this strategy several years ago as its legacy dial-up Internet service declined.

It has been a difficult transition, however: The company's online ad revenue fell last year, despite improvement in the market following a 2009 slump that hurt the company and its competitors.

In a Monday note to investors, Merriman Capital analyst Corbin Woodhull said he'd like to see evidence that the company's strategy for its media websites and domestic display ads is catching on.

"AOL has staked its turnaround strategy around key online content verticals in North America, where it feels it can compete with quality editorial content."

He said that, to feel confident in the turnaround, analysts will want to see solid organic growth, compared with a year earlier, starting in the first quarter.

Woodhull, who rates the stock "Neutral," thinks the company's domestic display online ad business will return to "modest" growth this year, and the purchase of The Huffington Post will speed this growth next year.

WHY IT MATTERS: The performance of AOL's online advertising business gives an indicator of the health of the online ad market and the media market overall.

WHAT'S EXPECTED: Analysts polled by FactSet expect an adjusted profit of 28 cents per share on $535 million in revenue.

LAST YEAR'S QUARTER: For the first quarter of 2010, AOL reported net income, according to generally accepted accounting principles, of 32 cents per share and $664.3 million in revenue.

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