Balancing AOL's renewed advertising strength with its continuing loss of dial-up subscribers, Merrill Lynch Analyst Jessica Reif Cohen wrote: "margins should remain resilient over time as higher-margin advertising revenue replaces subscription revenue." Overall, AOL's fourth-quarter revenues rose 1 percent to $2.2 billion. As expected, AOL's ad revenues for 2004 came to about $1 billion. (See MDN "AOL Closes In On $1 Billion," Dec. 8, 2004
Although AOL continued to lose U.S. subscribers, the rate of defections slowed to 464,000 in the last quarter--from 646,000 the quarter before. This loss was more than mitigated by AOL's fourth-quarter ad revenues, which grew by 23 percent (excluding Advertising.com). Search advertising--which accounted for $80 million in the quarter--grew 25 percent, while traditional advertising grew by 13 percent.