AOL Posts Modest Profit but Revenues Decline

AOL's revenues dropped 17 percent due to declining subscriptions and a weak online advertising market as the company reported its first quarterly financial figures since spinning off from Time Warner.

Revenue came in at US$809.7 million for the fourth quarter of 2009, down from $974.2 million from the same quarter a year prior.

Net income for the quarter was a modest $1.4 million. For the same period a year prior, AOL lost $1.9 billion due to a $2.2 billion non-cash goodwill impairment charge.

AOL became an independent, publicly traded company in December after Time Warner spun it off via an initial public offering. In recent years, AOL has sought to change its business model, moving away from being an ISP (Internet Service Provider) and focusing on becoming an online advertising and content services company.

The company's total advertising revenues were down 8 percent to $471.6 million from the fourth quarter of 2008.

Display advertising sales outside the U.S. fell 22 percent due to soft markets in the U.K., Germany and France, AOL said. Display advertising in the U.S. rose 1 percent to $151.7 million.

AOL said its search and contextual advertising -- the strength of competitor Google -- fell 19 percent. The decline was due to a 27 percent year-over-year decrease in its Internet access subscribers, which AOL said tend to search more frequently and monetize at a higher rate than non-subscribers on its properties.

Despite drastic changes in its corporate structure, AOL still has the largest reach of any advertising network in the U.S., according figures released last month by comScore. AOL had an audience of 187 million U.S. Internet users in December 2009. Yahoo came in second with 180.9 million and Google at 178.1 million.

On its own Web properties, AOL has reduced the number of advertisements to make the pages cleaner, said Tim Armstrong, AOL's CEO, during a conference call. The cluttered pages were an attempt by AOL in the past to increase ad revenue but it negatively impacted users.

AOL's e-mail has 60 percent fewer advertisements now, Armstrong said. The idea is that advertisers will want premium placement on pages with fewer ads and pay more. AOL has also changed its views on how it measures success, moving away from page views to unique visitors instead, Armstrong said.

AOL will continue to push Seed.com, its platform for populating its properties with content, and develop StudioNow, a company acquired by AOL that provides online video services.

AOL is also shopping around for a new search deal since its arrangement with Google will end this year. Armstrong said Google has been a great partner but AOL "wants a longer term partnership with the right incentives and outcomes."

The company has also taken steps to tighten its expenses. In December, AOL sought up to 2,500 employees who were willing to voluntarily walk away from their jobs in order to trim about a third of its staff of 6,900 at the time. However, only 1,100 employees took AOL up on its offer.

To reach is staff-reduction goal, AOL earlier this year began laying off between 1,200 to 1,400 employees worldwide.

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