AOL soars on third-quarter profit

Advertising, subscription revenue down for online content provider in makeover mode

Shares of AOL jumped more than 9 percent in early trading Wednesday after the Internet veteran more than doubled its third-quarter profit from a year ago. By late morning, AOL (NYSE: AOL) was up 1.51, or 6 percent, to 26.80. Earlier in the session shares rose as high as 27.65, a gain of 9.3 over Tuesday's closing price of 25.29. Through Tuesday, AOL was up 8.6 percent this year. Since July 31, AOL has gained 21 percent.

AOL reported Q3 profit of $171.6 million, or $1.60 per share, up from $74 million, or 70 cents per share, in last year's third quarter. Excluding one-time events, earnings were 82 cents per share. Meanwhile, ad revenue fell 27% to $292.8 million from $402.3 million, while subscription revenue dropped 26 percent to $244.8 million from $332.2 million. Combined, those two categories comprise 95 percent of AOL's Q3 total revenue of $563.5 million. But investors apparently support AOL's efforts to redefine itself since being spun off from Time Warner last December. Those efforts include selling social-networking site Bebo last June, for which the company overpaid in March 2008, and in September buying content sites such as technology blog TechCrunch and 5min Media, a Web video-syndication company. AOL also has been hiring journalists to cover hyper-local news. The bottom line is that AOL is trying to carve out a niche with "quality," original content, which it hopes will give the brand a stronger identity and reverse the decline in online advertising revenue. It really doesn't have much choice because, over the long run, the subscription model isn't the answer.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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