• by Gavin O'Malley  @mp_gavin, November 3, 2010

Aggressive cost-cutting and asset sales helped AOL increase third-quarter earnings by over 130% -- from $74 million to $171 million, the company said Wednesday. 

Yet particularly as rivals are reporting stronger ad sales, AOL's earnings were overshadowed by the fact that ad revenue fell 27% year-over-year. Overall, ad revenue declined $109 million year-over-year. Worse still, AOL now says it has lost about $848 million since the beginning of the year.

Despite resolve and optimism, AOL head Tim Armstrong said Wednesday: "AOL is not a great investment if you are looking for quarter-over-quarter results ... but we hope you stick with us."

On a conference call with analysts, Armstrong said he expected the company's advertising business to recover by mid-2011.

AOL's rising profits were due largely to the sale of its investment in online travel site Kayak, and its ICQ instant messaging program.

AOL also recently agreed to sell the east side of its former Dulles headquarters for about $144 million -- which, if finalized by mid-November, will give the company about $750 million with which to invest.

Reiterating early statements, Armstrong on Wednesday said the company was aggressively looking at potential acquisition targets to realize its content-focus ambitions, and improve its technology platform.

For the first time, AOL on Wednesday revealed it had spent $97 million this past quarter to buy tech blog network TechCrunch, social media startup Thing Labs, and mostly, online video distributor 5min Media.

Armstrong also hinted at a potential partnership with Yahoo, which he said could make sense for both companies.

Last month, Yahoo was reportedly working with Goldman Sachs Group to help fend off against possible takeover approaches, while AOL has reportedly talked with private-equity funds including Silver Lake about a possible bid for Yahoo.

Continuing its precipitous decline, AOL's subscription revenue decreased 26% in the third quarter as subscribers fell by 24% to 4.1 million.

Separately on Wednesday, AOL named Curtis Brown and Erynn Petersen to the company's Technologies team.

Brown will join the company as senior vice president of Engineering for AOL Media at the end of November, while Petersen will come on as Vice President of Developer Evangelism next week.

Both Brown and Petersen will report to AOL Chief Technology Officer Alex Gounares and will serve in leadership roles on the company's Global Technology Cabinet.

Brown will oversee the software development of AOL's broad-scale media platforms, and will be responsible for the technology roadmap for AOL Media. He most recently served as chief technology officer at educational services provider Kaplan Test Prep.

Petersen will lead AOL's Developer Evangelism Program, which supports AOL's APIs among the external developer community and expands upon AOL's open-source strategy. She comes to AOL from Microsoft, where she served as a partner manager to Yahoo, responsible for advertising engineering integration.