AOL posts first quarterly rev growth in 8 years, shares up

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(Reuters) – AOL Inc on Friday reported its first quarterly revenue growth in eight years on strong search and advertising sales, sending shares up as much as 14 percent.

The company said total revenue rose 4 percent to nearly $600 million in the fourth quarter, beating analysts’ estimates of $573.7 million, according to Thomson Reuters I/B/E/S.

Advertising revenue, an important measure for the company as it moves away from subscription-based dial-up services and emphasizes its media properties, rose 13 percent to $410.6 million.

Advertising sold through AOL’s third-party network helped boost overall revenue. Revenue jumped 37 percent to $183.5 million at AOL Networks, a market to sell inventory on behalf of other websites.

This quarter AOL introduced a new reporting structure that provides more clarity on its business units, including how much profit each contributes.

AOL shares are up more than 75 percent over the past year. The run-up came as Tim Armstrong, the chief executive and former Google Inc ad executive, fended off activist shareholder Starboard Value in a proxy battle, sold $1 billion worth of patents to Microsoft Corp, and returned the money to shareholders.

Questions linger over AOL’s business strategy of trying to market itself as a destination for content like the Huffington Post and Endgadget, especially since its advertising business is contributing a small amount to the bottom line.

While the company wants ad sales to be the path to future growth, the subscription unit, now called the membership group that includes the dial-up service, is providing the company profit.

Excluding special items, quarterly operating income before depreciation and amortization (OIBDA) for the membership group was $158.7 million, most of the total.

By contrast, AOL Networks’ OIBDA was $6.4 million.

“It’s not great to see so much of the bottom-line contribution coming from the revenue segment in decline,” said Evercore analyst Ken Sena.

While Sena said the company made “steady progress” over the past two years, “it still has a ways to go.”

Armstrong addressed concerns from analysts who questioned when AOL would reap the benefits from its advertising revenue growth.

“So the ad business itself, if we ran it purely for profitability and didn’t put any investments in the (advertising), that I think would be a mistake,” Armstrong said on a conference call with analysts.

The Brand Group, which includes the Huffington Post and Patch, reported that revenue rose 4 percent to $213.2 million and adjusted OIBDA totaled $8.8 million.

Patch, a collection of local news sites, missed its revenue target of $40 million last year. Armstrong blamed Superstorm Sandy as advertisers along the East Coast pulled back spending.

Net income rose to $35.7 million, or 41 cents per share, in the fourth quarter from $22.8 million, or 23 cents per share, a year earlier. Earnings per share were in line with analysts’ estimates.

In addition to the results, AOL’s board authorized the repurchase of $100 million in stock.

Shares of AOL were up 9 percent at $34.20 in morning trade. They traded as high as $35.84 earlier in the session.

(Reporting by Jennifer Saba in New York and Sayantani Ghosh in Bangalore- Editing by Saumyadeb Chakrabarty, Lisa Von Ahn and Jeffrey Benkoe)

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