AOL First-Quarter Financials Rise

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Internet company AOL on Wednesday reported higher first-quarter financials amid its return to growth in global display advertising revenue.

The company, led by chairman and CEO Tim Armstrong, reported "growth in all advertising revenue lines for the first time in five years."

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First-quarter earnings rose 23 percent to $25.9 million, coming in slightly below Wall Street expectations. Revenue rose 2 percent to $538.3 million, beating analysts' forecasts. Ad revenue rose 9 percent, with display ad revenue up 8 percent, and display ads up 9 percent. Subscription revenue dropped 9 percent.

General and administrative expenses declined amid lower personnel-related, legal and consulting costs due in part to a year-ago proxy contest with a dissident shareholder.

AOL's membership group, its subscription business, continued to be the profit driver with adjusted operating profit before depreciation and amortization of $146.4 million. The firm's ad-driven "brands group" narrowed its adjusted operating profit loss from $16.8 million to $4.9 million.

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Asked about the recent shutdown of AOL Music, company executives said Wednesday that they are currently reviewing the companies' services and planning to focus on the assets where the firm is a real player and moves the needle.

In AOL's Internet access business, the company lost subscribers to end March with 2.7 million U.S. subscribers, down 4.7 percent from the end of 2012.

“Growth continues at AOL,” said Armstrong. "AOL’s strategy of being the first scaled media and technology company is clearly represented in our results today, and we will continue to aggressively drive the company toward near- and long-term growth."

"AOL put out a decent quarter with results in-line with expectations," said Jefferies analyst Brian Pitz. "Importantly, we are finally seeing growth in the company's core domestic display segment." He has a "buy" rating and $50 price target on the stock of AOL.

During the company's earnings conference call, Armstrong said that "AOL is making exciting progress at an exciting time" for the Internet. He reiterated that the company wants to be a bigger player in online video and said the company is looking to get its content on TV sets via over-the-top TV partnerships.

He also reiterated that AOL's local news provider Patch would turn profitable in the fourth quarter.

During its recent NewFront presentation, AOL unveiled 15 new shows, including one with Sarah Jessica Parker. Discussing the news, Armstrong said that his team was excited about the content slate and is currently doing a road show across the U.S. to sell ads around it now. But he quipped that another recent deal, which will add AOL ad inventory into the TV ad buying system via an arrangement with Media Ocean and Nielsen, was "more sexy" for business reasons than Parker.

Asked about online versus TV ad spending trends, Armstrong said: “This is the first real year where you will actually see dollars move from TV to the Internet overall,” with 2014 likely to be a big year for online video.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

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