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AOL posts strong earnings, stocks soar

CEO trumpets ‘significant milestone’

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After a decade of falling behind more-innovative competitors such as Google and Microsoft, former Internet giant AOL slammed the brakes on its decline Wednesday, as the company announced its best earnings results in years, thanks to a big patent sale to Microsoft and an increase in advertising revenue.

AOL earned a net income of $970.8 million, or about $10.17 a share, in the second quarter, up from an $11.8 million loss a year earlier, or about 11 cents per share.

That sent the stock soaring. It closed Wednesday at $29.48, up $1.99 or more than 7 percent from Tuesday. The stock has risen about 95 percent from the beginning of the year, when it was worth slightly more than $15.

"Today's results represent a significant milestone for AOL as we returned to Adjusted OIBDA growth for the first time in four years," AOL Chairman and CEO Tim Armstrong said in a statement. "The strong results and consumer performance we announced today are clear signs our strategic and operating efforts are translating into significant financial progress."

AOL's earnings report was a pleasant surprise to investors, sandwiched between Apple's results, which disappointed analysts on Tuesday, and Facebook's first report as a public company, which will be released Thursday.

By far the larger part of AOL's earnings came from the sale of patents, particularly to Microsoft, which accounted for a $945.8 million gain. Without this one-time sale, earnings would have come to 23 cents per share, still better than the previous year.

"AOL has not turned around yet, but they have slowed the decline, and that in itself is important news to date," said Jeff Kagan, a technology analyst based in Atlanta. "Whether AOL can once again be a growth company is a big question, but at least this is a good sign."

The company, which was founded in Fairfax County and is now headquartered in New York, took advantage of the Web boom around the turn of the century, but then lost its direction and couldn't keep up with tech competitors.

More recently, it has begun reshaping itself into an online media company. It has purchased Internet news websites and blogs such as the Huffington Post, Patch, Tech Crunch and Engadget.

This has improved the company's revenue as total advertising rose 5.9 percent to $337.8 million in this year's second quarter, up from $319 million for the same 2011 period, including a 1.7 percent increase in global display advertising to $139.9 million, but U.S. advertising disappointed.

An eMarketer study shows AOL's position in the online ad revenue market in the U.S. declined to 2.8 percent in 2011, from 3.4 percent the previous year. The company hopes to improve on this.

"We should be a growth company in display advertising," Mr. Armstrong told reporters. "We should be doing a better job at it and we're working on it."

Meanwhile, revenue continued to decline, but at a slower pace. Sales fell 2 percent to $531.1 million. It was the smallest decline in seven years, and better than the $519.2 million that analysts had predicted.

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