AOL posts $1.4 million profit

By Ben Rooney, staff reporter

NEW YORK ( -- In its first quarterly filing since splitting from Time Warner, AOL Inc. said Wednesday that it swung to a profit in the fourth quarter from a year earlier.

The New York-based company reported net income of $1.4 million, or 1 cent per share, in the three months ended Dec. 31. That compares with a loss of $1.9 billion, or $18.52 a share, in the year-ago quarter.

Excluding certain charges, including $107.4 million for restructuring, the company said it earned 71 cents per share.

Sales fell 17% to $809.7 million, led by sharp declines in AOL's subscriber base. Subscription revenue plunged 28%, while advertising sales were down 8%.

The company continued to lose dial-up subscribers as users flock to higher speed Internet connections. AOL's subscription base fell 27% to about 5 million from 6.9 million a year earlier.

But the results were better than expected. Analysts surveyed by Thomson Financial had forecast earnings per share of 63 cents on sales of $700 million.

"We have made significant progress in support of the long-term vision we see in the future of AOL," said AOL Chief Executive Tim Armstrong in a statement. "But today's results continue to reflect the need for our focus and execution on the work required in the turnaround of the company."

Flying solo

The results reflect AOL's performance since it regained its independence from media giant Time Warner in December. It is also AOL's first report as a standalone firm since October 2000, when the company posted a quarterly profit of $350 million.

Time Warner (TWX, Fortune 500), which owns, spun AOL off to shareholders late last year, ending what many experts said was the most disastrous corporate marriage of all time.

AOL has been trying to reinvent itself as a content and advertising company as subscribers to its dial-up Internet access business have dwindled. But the company has lagged rivals Google (GOOG, Fortune 500) and Yahoo (YHOO, Fortune 500) in key areas such as display advertising.

AOL's global display advertising revenue declined 3% to $176.4 million in the quarter. Revenue from international display advertising plunged 22%. On the bright side, revenue from U.S. display advertising rose 1%, marking the first quarter of year-over-year growth in two years.

"The financial results, in general, were as expected. Though there was a hint of improvement in domestic advertising," said Clayton Moran, an analyst at The Benchmark Company.

Search revenue, generated when users click on text-based ads on their screens, fell 19% to $145.4 million. AOL said it expects search revenue to continue to decline in 2010 as restructuring costs offset industry improvements.

As part of its turnaround plan, AOL said it will exit some overseas markets, do away with certain products and end unprofitable partnerships. The company has also laid off thousands of workers since it separated from Time Warner.

"2010 will be a year of transition," Artie Minson, AOL's chief financial officer told analysts in a conference call. "But we will do so with the long term vision for AOL in mind."

Looking ahead, AOL said it will continue to focus on developing content that will attract consumers and advertisers to its properties.

"We have a content plan that's based on hitting very specific audiences with content that's important to them," Armstrong said.

Moran said AOL's focus on targeted content makes strategic sense because the content business is fragmented, "which is to say that it isn't dominated by Google." But the plan has yet to bear fruit and is "easier said than done," he added.  To top of page

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