NEW YORK (CNNMoney) -- Losses continue to mount for AOL, yet the online media company's chief executive sees glimmers of hope for the future.
AOL's financials, on paper, portray a company in dismal shape: Sales sank 6% and AOL lost $2.6 million during the past quarter.
Double-digit growth in banner and video advertising sales was partially offset by a 15% drop in search ads. And the gain in total ad sales were more than offset by the continued free-fall in dial-up subscription revenue.
But Tim Armstrong, the Internet portal and advertising company's CEO since 2009, pointed out that quarterly revenue declines were the lowest in 5 years. He noted that search ad sales fell by the smallest amount in 2 years.
In other words, things are getting less bad.
"AOL is ... substantially closing the gap to revenue and eventual profit growth," said Armstrong, in a prepared statement. "We continue to build strong consumer experiences as we execute our strategy to build the premium branded media company for the Internet."
Less bad turned out to be good enough to beat Wall Street's expectations for the third quarter.
The company lost 2 cents per share, compared to analysts' median estimate of a 6-cent loss, according to a survey conducted by Thomson Reuters. The $531.7 million in sales during the quarter was also better than the $524 million analysts expected.
Shares of AOL (AOL), which have fallen by nearly 37% this year, rose 12% on Wednesday following the news.
There were also a few bright spots for AOL during the period. For instance, Patch, the company's hyper-local news outlet, grew to 10,000 bloggers on its site. It also launched Patch Deals, giving AOL access to thousands of advertisers that weren't on the site last year.
Sales of ads on non-AOL websites grew for the fifth straight quarter, and international display advertising grew 28% since last year.
Still, traffic growth to AOL sites was surprisingly flat, considering the company added blogs like The Huffington Post and TechCrunch to its content roster since the same period last year. As a result, most analysts thought display advertising growth should have been even better than it was.
"Overall, relative to expectations, they did okay," said Ken Sena, analyst at Evercore Partners. "But we're just not seeing growth in the traffic numbers that we wanted."
Others remained upbeat, however, buying into Armstrong's theory that AOL is amid a turnaround.
"I'm positive on the stock," said David Joyce, analyst at Miller Tabak & Co. "The strategy is working and they have some interesting ad platforms that are gaining traction."
The struggles of AOL are similar to those at bigger rival Yahoo (YHOO, Fortune 500), leading some to speculate that a merger might solve both companies' problems.
Meanwhile, Yahoo is making deals to improve its own brand, purchasing automated display ad auctioneer Interclick (ICLK) for $270 million on Tuesday.
Interclick's technology will give Yahoo muscle in its attempt to fend off Google from stealing more of its display ad market share. Google (GOOG, Fortune 500), like Interclick, uses an automated method for selling display ads. 
