AOL Q3 Profit Rises on Best Ad Growth in 7 Years

AOL shares rises 11% after Q3 revenue of $531M beats analysts' expectations

AOL reported higher-than-expected revenue and profit on the strongest advertising growth the company has seen in seven years.

AOL said on Tuesday that third-quarter revenue was flat at $531.7 million, ahead of analysts' average estimate of $521.6 million, according to Thomson Reuters.

Advertising revenue rose 7 percent to $340 million, while subscription revenue for AOL's dial-up services fell 10 percent to $173.5 million.

Subscription revenue had its lowest rate of decline in six years.

Also read: AOL Earnings Skyrocket Even as Revenue Drops 4%

AOL shares rose 11 percent to $39.61 in morning trade.

"Things look great," RBC Capital Markets analyst Andre Sequin said. "This company is continuing to make steps in the right direction."

These trends are helping AOL since its turnaround hinges on the success of getting more online advertising dollars and reducing its reliance on the lucrative but moribund dial-up business.

AOL Chief Executive Tim Armstrong said in an interview with Reuters that the main focus next year will be to focus on advertising and video, which tends to command higher prices from marketers.

Still, there are troubling signs in the results. Domestic display advertising, where AOL is making a big effort, including splashy acquisitions such as the Huffington Post, fell 3 percent in the quarter.

That compares with the overall U.S. display ad market estimated to grow more than 20 percent to $14.98 billion, according to research firm eMarketer.

Also read: AOL Overhauls Connected TV App

AOL's advertising revenue was lifted by search revenue and double-digit growth in third-party network revenue.

Display ads are big, pricey units on Web pages favored by brand advertisers. Third-party network consists of AOL's, which helps sell ads across other properties. These types of ads typically are lower-cost than those ads known in the industry as premium display.

"We weren't exactly 100 percent drilled and focused on the advertising strategy the first half of the year. But we are now," Armstrong said on a call with analysts.

"I think overall, what you're going to see is an operational improvement around advertising as we get into 2013."

The company, however, has taken a number of steps over the year, including selling some of its patents to Microsoft for $1 billion and returning those proceeds to shareholders.

Shares are up 137 percent year-to-date.

Net income was $20.8 million, or 22 cents per share, compared with a year-earlier loss of $2.6 million, or 2 cents per share.

AOL's third-quarter earnings per share of 22 cents was well ahead of analysts' forecast of 17 cents.