AOL beats low expectations, impressionable investors swoon

Subscriber revenue falls 22% from last year, but global ad sales grow 8%

Shares of AOL (NYSE: AOL) soared more than 13% on Wednesday after the Internet pioneer reported quarterly losses that beat modest Wall Street expectations.

AOL shares reached as high as 15.14, or 13.3% above Tuesday's close of 13.35, after the company reported third-quarter results before the market opened.

AOL's fiscal third-quarter loss was $2.6 million, or 2 cents a share, on revenue of $531.7 million. In last year's third quarter, the company reported a net profit of $171.6 million, or $1.60 a share, on sales of $564.2 million. However, that profit was padded by proceeds from the sale of instant messaging business ICQ for $119.6 million.

Despite the drop of nearly 6% in revenue from last year's Q3, AOL beat consensus estimates of a 6 cents per share loss on $524 million in revenue, hence investor delirium.

Here's how low the bar is now for AOL (from Reuters):

"Investors have gotten used to disappointment from AOL especially in the forward outlook," said Benchmark analyst Clayton Moran. "Mainly there are no negative surprises in this quarter... and the forward outlook seems to be more stable."

On the genuinely plus side, global advertising revenue grew 8% to $317.7 million from $293.5 million a year ago. Subscription (dial-up) revenue dropped 22% to $191.9 million from $244.8 million.

Of course, the subscription revenue eventually will go to zero. Right now, though, it represents 36% of AOL's total revenue, versus 43% a year ago. But ad sales aren't making up for the steady loss of subscriber revenue, and whether they will in the next few quarters is open to question.

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