• Bloomberg News, Thursday, February 1, 2007 10:45 AM

Investors continue to like what's happening at AOL. While overall sales at the Time Warner unit fell 7.8 percent to $1.86 billion in the fourth quarter (year-over-year profit fell 10 percent), it was expected to. AOL continues to undergo the dramatic transformation that will eventually see it abandon the ISP business altogether, though the dial-up Web provider still has 13.2 million subscribers, losing 2 million during the fourth quarter.

Analysts reiterated that these are positive steps forward. "Basically, it's like cutting a tumor," said one portfolio manager. The tactic is working. Ad revenue surged 49 percent in the quarter, according to Bloomberg. AOL is encouraging its users to trade in its dial-up service for broadband access, which would enable them to access the portal's richer content offerings, and thus, sell more lucrative ads.

Also, Time Warner CEO Dick Parsons is starting to prove the wisdom of keeping the company's assets together. In late 2005, there were loud calls by minority investor Carl Icahn to shed AOL. But the monumental business model shift at AOL is one of the driving factors behind the parent company's recent 33 percent stock surge.

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