AOL Reports Profit in First Earnings After Spinoff (Update1)
February 03, 2010, 11:25 AM EST(Adds CEO’s comments in fourth paragraph.)
By Sarah Rabil
Feb. 3 (Bloomberg) -- AOL Inc., the Internet company spun off from Time Warner Inc., posted a fourth-quarter profit of 1 cent a share in its first earnings report as an independent firm as display advertising sales improved.
Net income totaled $1.4 million, compared with a loss of $1.96 billion a year earlier, when Time Warner wrote down the value of its Internet property, New York-based AOL said today in a statement. Revenue dropped 17 percent to $809.7 million, compared with the $708.3 million average of nine analysts’ estimates compiled by Bloomberg.
Time Warner spun off AOL in December, nine years after a $124 billion combination that triggered record losses. AOL Chief Executive Officer Tim Armstrong, 39, is trying to spur profit growth by investing in specialized Web sites and overhauling ad sales, and cutting about one-third of the company’s 6,900 employees.
“The investor community has been very positive on AOL in terms of the long term,” Armstrong said today in a telephone interview. “They know it’s going to be not a 2010 turnaround, but a multiyear turnaround.”
AOL, which runs sites such as MapQuest, PoliticsDaily and Lemondrop.com, rose 36 cents to $25.01 at 10:58 a.m. on the New York Stock Exchange. The shares, which began trading Dec. 10, had climbed 5.9 percent this year before today.
Display Ads
Display advertising declined 2.6 percent from a year ago, less than the 20 percent drop estimated by John Blackledge, a Credit Suisse analyst who rates the shares “underperform.”
The company competes for sales of display ads -- the banner ads and other graphics that run on Web sites -- with companies including Yahoo! Inc. The U.S. online display ad market may rebound this year, growing 2.6 percent after a decline of 1 percent in 2009, Douglas Anmuth, an analyst with Barclays Capital, said in a Jan. 20 research report.
AOL’s domestic display advertising grew 1.5 percent last quarter to $151.7 million. Total display ad sales fell because of a 22 percent decline in international revenue. Armstrong said the company plans a “substantial” pullback in international markets this year as it reworks its technology platform.
“Our expectation is in the future -- 2011, 2012, 2013 -- that we would start trending back into international markets,” Armstrong said.
Google Deal
Google Inc. provides AOL’s Web search, and AOL gets a share of the revenue generated through text-based search-generated ads. That arrangement expires in December. Google is in a stronger position than rivals to sign a new search deal with AOL because the two companies have been partners for almost a decade, Armstrong said.
“We also, as a turnaround situation at AOL, have to be open to whatever partnership is going to be the best partnership for us for the long term,” he said.
As a standalone company, the Internet pioneer founded in 1985 reported declines in subscribers to its online access service and in advertising revenue. Ad sales fell 8 percent to $471.6 million, and subscription revenue slipped 28 percent to $307.4 million. The number of subscribers declined 27 percent to about 5 million from a year ago.
--Editors: Andrew Dunn, Cécile Daurat
To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net
To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.
