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
) 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
) and Microsoft (MSFT
). 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
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Published on Nov 8, 2012
By Leo Sun