AOL Profits Plummet 86% During First Quarter, But CEO is Undeterred

Revenues fall, advertising slides, but display ads grew for the first time since 2007 — “an important milestone in the turnaround,” CEO Tim Armstong says

Last Updated: May 4, 2011 @ 6:46 AM

AOL’s turnaround may take longer than even Tim Armstrong anticipated. Not that's he's deterred.

While the company's chief executive lauded “an important milestone” in that turnaround — the growth of display advertising for the first time since 2007 — AOL’s net income fell 86 percent during the first quarter as overall advertising and subscription revenues fell.

It was the first quarterly earnings report for AOL since its $315 million acquisition of the Huffington Post.

Net income was $4.7 million — 4 cents per share — during the first quarter, compared to $34.7 million — or 39 cents per share — a year ago.

Overall advertising revenue fell 11 percent (to $313.7 million) on lower search and third party revenue.

AOL's overall revenue fell 17 percent (to $551.4 million) on the ad decline and lower revenues from subscriptions — the business AOL, the former dial-up Internet connection giant, is trying to transition away from.

Operating income swung to an $11 million loss (from an $80.7 million profit in the first quarter last year) as lower revenues and an increased investment in Patch.com, AOL's hyperlocal network, and $9 million in unspecified deal-related costs associated with the Huffington Post and goviral.com acquisitions drove down earnings.

Of the HuffPo merger, “It’s the fastest, best integration I’ve seen at any company I’ve been at," Armstrong said during an early morning conference call with investors.

On Patch, AOL executives would not commit to a timeline for profitability, but said they anticipate declines in losses. As far as Patch's strategy, Armstrong said he sees the hyperlocal network as a platform ("for community, consumers, businesses, schools") that can partner — rather than compete with — local bloggers in Patch towns.

He said that AOL is on pace to reach its stated goal of having 1,000 Patch sites up and running by the end of the year. (There are currently about 800.)

Armstrong thanked AOL employees at the end of the conference call. "We've done more work in Q1 than most companies have done in the year," he said. "We have our hands at '10 and two' and our foot on the gas pedal. … We've gone from turnaround to a comeback, now we're on offense."

Click here for the full earnings release.

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