AOL shares jump as ad revenue gains
The company has its best quarter in many years as it transforms itself into an advertising-driven business.
Remember AOL (AOL)? It's still alive and becoming prosperous, thank you very much. And it reported on Friday its first quarterly revenue gain in eight years.
Shares jumped as much as 14% right after Friday's open and closed up $2.31 to $33.72. The shares have risen 85% in the last year and have tripled since bottoming at $10.22 on Aug. 11, 2011.
AOL is hardly the giant that merged in 2001 with Time Warner (TWX) in one of worst deals ever. But revenue was up 4% to $599.5 million in the fourth quarter from $576.8 million a year ago, paced by a 13% gain in advertising revenue. Analysts had expected revenue would fall to $566.7 million, Bloomberg News said.
For the year, revenue was $2.19 billion, down 0.5% from a year ago.The company earned 41 cents a share, up 78% from a year ago's 23 cents. Net income was $35.7 million, up from $22.8 million a year ago.
Advertising revenue is jumping because of AOL's third-party ad sales business, whose revenue jumped 31% in the quarter to $137.2 million. The business helps other Web publishers sell ad space through automated systems -- a process called programmatic buying.
"The future of advertising is going to be more machine-to-machine trading," CEO Tim Armstrong told Bloomberg on Friday. Essentially, much online advertising will be bought and sold via trading desks, like stocks and bonds.
Armstrong has worked to transform the New York-based company into an advertising-based content publisher rather than a dial-up Internet service provider. In fact, its dial-up revenue fell 10% in the quarter to $174.2 million.
Search advertising increased 17% in the fourth quarter to $103.6 million, the company said. Display advertising, which includes banners and video -- was little changed at $169.8 million.
AOL was spun out of Time Warner in 2009. Armstrong, who came over from Google (GOOG), has cut costs ferociously and spent more than $600 million on Web publishing, acquiring the Huffington Post in 2011 for $315 million and investing more than $300 million to develop Patch, a local-news division that he said should start becoming profitable by the end of this year.
Patch generated less than $40 million in revenue last year, missing its sales target by about 25%, according to Armstrong. Hurricane Sandy affected ad sales in several hundred Patch towns.
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