By Jennifer Saba
(Reuters) - Online media group AOL Inc said on Wednesday that first-quarter revenue grew on strength in its advertising business, but shares sank on concerns that profits were still mostly coming from a shrinking dial-up platform.
The stock tumbled 10 percent to $37.35, the second worst decline in the past 18 months, signaling that some investors were not sold on AOL's strategy of building its business on content.
"The core issue with this company is can they make content profitable?" said Ben Schachter, an analyst with Macquarie Research. "What you see every quarter is the only thing making money is the membership group. They are clearly going in the right direction, but we want to see more progress."
For the past several years, AOL has been trying to transform itself into a media destination, a change from the days when it was best known as an Internet access business with free-trial CDs that clogged mailboxes.
AOL Chief Executive Tim Armstrong has invested heavily in content, with big acquisitions like the $315 million purchase of the Huffington Post. AOL has also plowed more than $100 million into Patch, a group of hyperlocal websites that covers neighborhood news and events.
Even with all of that spending, the legacy subscription service is still the most profitable part of the company.
AOL reported an operating loss of almost $5 million from its media sites, including Patch, Huffington Post, Engadget and TechCrunch.
The membership group posted operating profit of $146.4 million in the quarter. The membership unit includes subscription revenue from its dial-up service.
AD REVENUE JUMPS 9 PCT
Some encouraging trends have emerged. Display ad growth was a bright spot, Macquarie's Schachter said. The ads, big splashy campaigns often featured prominently on websites, are an important benchmark for AOL because they command higher prices.
Yahoo Inc, a competitor, reported that first-quarter display ad revenue fell 11 percent.
Overall advertising revenue for AOL increased 9 percent to $359.2 million, including a 6 percent gain in domestic display advertising.
Revenue from the media sites jumped 14 percent to $189.6 million, on higher ad sales.
Total company revenue increased 2 percent to $538.3 million, missing analysts' expectations of $542.1 million, according to Thomson Reuters I/B/E/S.
Net income rose 23 percent to $25.9 million, or 32 cents per share, and met analysts' expectations.
Before Wednesday's report, AOL shares had soared 67 percent in the latest 12 months, just slightly underperforming Yahoo.
(Reporting by Jennifer Saba in New York; Editing by Jeffrey Benkoe)
Source: http://news.yahoo.com/aol-returns-display-advertising-growth-111132221.html
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