AOL (AOL) Tops Both Top and Bottom Lines on Rising Advertising Revenue

Shares of AOL Inc. (AOL: Charts, News) surged 11% on Tuesday after reporting robust third quarter earnings, but slid sharply along with the rest of the market on Wednesday in the aftermath of President Obama's re-election. However, AOL's stock has more than doubled over the past twelve months, outperforming Apple (AAPL: Charts, News), Google (GOOG: Charts, News) and Yahoo (YHOO: Charts, News). For its third quarter, AOL earned 22 cents per share, or $20.8 million, a major improvement over the loss of $2.6 million, or 2 cents per share, it earned in the prior year quarter.

Excluding one-time charges and adjustments, AOL earned 34 cents per share, topping the average analyst estimate of 29 cents per share. AOL's revenue came in at $531.7 million, in line with the previous year, and exceeding the analyst expectation of $522 million. This was also the first year that AOL didn't post a year-over-year decline in revenue. Daily Chart
New York-based AOL, once known as Internet service provider America Online, was spun off of media giant Time Warner (TWX: Charts, News) in 2009 after a disastrous, unprofitable merger. Since the spin off, AOL was reborn as a family of content-providing media websites, including the Huffington Post and TechCrunch, among others. AOL has invested $600 million in web publishing initiatives in an effort to attract more readers with original content. AOL acquired the Huffington Post last year for $315 million, and spent $300 million to develop Patch, a local news division. Internet traffic at Patch rose 19% over the past year. The company intends for Patch to generate approximately $50 million by the end of the year. AOL's investments appear to have paid off, with readership at its websites rising 4% to 111 million visitors during the quarter. AOL attributed its strong third quarter earnings to rising advertising sales. The company's global advertising revenue rose 7% to $340 million during the quarter. AOL's search advertising grew 7.9% to $91.8 million, while its advertising network grew 18% to $112.8 million. U.S. display advertising dipped 1% to $135.4 million, but international display advertising rose 18%, offsetting its domestic weakness. AOL notably uses "contextual advertising," like its industry rival Google, which targets Internet users with ads based on their past browsing and search histories, which generate higher click-through rates. CEO Tim Armstrong remained optimistic regarding the next year, stating, "We expect 2013 to be a growth year, both in terms of revenue and operating income." Although AOL has grown strongly in the Internet advertising business, it still ranks fifth in in the industry, trailing Google, Facebook (FB: Charts, News) and Microsoft (MSFT: Charts, News). AOL is still attempting to turnaround its aging dial-up business, once its flagship product, which has steadily lost customers to broadband services from cable companies over the past decade. Revenue from its dial-up business segment dropped 10% to $173.5 million. Shares of AOL trade at 32.2 times forward earnings, which has raised red flags with more conservative investors, which consider it overvalued in comparison to its industry peers. The stock has traded in a wide 52-week range between $13.49 and $43.93. Other News About AOL AOL Shares Surge After Reporting Q3 Profit on Higher Advertising Sales AOL continues its year-long rally after its Q3 earnings top analyst estimates. Is it Time to Give AOL a Break Already? Can AOL truly catch up to Yahoo or Google? Other Stocks in the News Finding Tasty Beverage Stocks Are beverage stocks a safe bet if the market crashes? Apple Inc. Set To Beat Revenue Estimates For 2013 Can Apple bounce back to $700 after its recent plunge? Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Nov 8, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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