• by Wayne Friedman , November 2, 2006

Time Warner's financial situation is a slowly improving one--although not all analysts are convinced that its new AOL strategy will work.

Third-quarter profits nearly tripled to $2.3 billion. The big gain stems from the purchase of the Adelphia systems to Time Warner and Comcast Corp. The complicated deal had Time Warner and Comcast swapping cable systems.

In fact, overall revenue increased 7% to $10.9 billion. Excluding special items, Time Warner grew 19 cents per share in third-quarter 2006, versus 17 cents from a year earlier. The company's stock hit a four-year high in October, at a shade just under $20 a share.

Cable revenue was up 44% from subscriber growth. But early-morning trading of Time Warner shares witnessed a dip because of some confusion over cable data versus the previous fourth quarter, analysts say.

The company's quarterly results also gained from a 46% rise in online advertising sales at the AOL Internet division. But AOL news has been mixed ever since the company announced that it would transform to an ad-supported model, which also resulted in layoffs of some 5,000 staffers.

For example, AOL's page views--a key measure of Web traffic--fell 5% in the quarter. Analysts question whether this trend could hurt growth--which is why many are not excited about the stock.

Upbeat Time Warner chairman Dick Parsons told analysts: "Not only are former AOL subscribers coming back, a host of new first-time users are signing up." He expects AOL ad sales growth will meet or improve industry average levels in 2007.

On the down side, the Warner Bros. studio was off a bit. Revenues dropped 10% to $2.4 billion; "Superman Returns" in the third quarter couldn't match last year's strong box-office sales of "Charlie and the Chocolate Factory" and "Batman Begins."

The company filed in October to spin off 16% of its cable company, which has 14 million subscribers.