AOL Rev Drop Not A Surprise

Tim Armstrong

Due to charges for a decline in share price and asset sales, AOL on Wednesday reported more than a $1 billion loss for the second quarter. Worse still, advertising revenue fell by 27% -- to $296.9 million -- an even faster rate than in the first quarter, while subscription dial-up revenue continued to erode.

Despite the losses and drop in revenue, Tim Armstrong, chairman and CEO of AOL, remained confident about AOL's future. "It's about taking a company that was very sick and making it healthy," Armstrong said during an earnings call on Wednesday.

"In the second quarter, we continued our efforts to successfully reposition AOL for growth and the company is getting healthier every day," he said. "Although we have much more significant goals for the future of AOL, we are pleased with this quarter's internal and external trends."



That said, the company reported a net loss of $1.06 billion, or $9.89 per share, in the April-June period. That included $1.4 billion in writedowns on the Bebo sale and declines in AOL's share price.

AOL's domestic display ad business was down 7% in the second quarter, while its international display ad business declined by a whopping 52% -- a huge loss that AOL attributed to its reduced presence in markets like France and Germany. Meanwhile, AOL's search and contextual ad business was down 28% in the quarter.

Analysts, however, were hardly caught off guard by the bad news. "We expect Q2 results to be fundamentally weak as the company undergoes its reorganization, and continues to face declines in its various businesses," Citigroup analyst Mark Mahaney wrote in a research note.

In the first quarter, AOL said earnings fell by 59%, as revenue from both advertising and subscription fees declined year-over-year. In the April-May quarter, AOL's revenue fell 26% to $584.1 million from $791.5 million a year ago.

Since separating from Time Warner last year, Armstrong has sought to streamline AOL's business operations and product offerings. Earlier this year, it sold its social network Bebo to a private equity firm Criterion Capital Partners for an estimated $10 million. AOL also recently entered into a definitive agreement to sell its ICQ instant messaging service to Russian company Digital Sky Technologies for $187.5 million.

Last month, meanwhile, AOL reached a deal to sell its research unit DMS Insights to market research firm uSamp. Financial terms of the deal were not disclosed, but the announcement came on the heels of uSamp raising $10 million in funding.

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