AOL Inc. Earnings Cheat Sheet: Fifth Straight Quarter of Shrinking Margins

AOL Inc. (NYSE:AOL) reported a drop to a loss in the third quarter driven by higher costs. AOL is a global web services company whose business consists of online content, products, and services that it offers to consumers, publishers, and advertisers.

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AOL Earnings Cheat Sheet for the Third Quarter

Results: Reported a loss of $2.6 million (2 cents per diluted share) in the quarter. The internet information provider had net income of $171.6 million or $1.60 per share in the year earlier quarter.

Revenue: Fell 5.6% to $531.7 million from the year earlier quarter.

Actual vs. Wall St. Expectations: AOL beat the mean analyst estimate of a loss of 7 cents per share. Analysts were expecting revenue of $524 million.

Quoting Management: “AOL grew global advertising by 8%, driven by 28% and 15% growth in third party network and global display advertising revenue, respectively, substantially closing the gap to revenue and eventual profit growth,” said Tim Armstrong, Chairman and CEO. “We continue to build strong consumer experiences as we execute our strategy to build the premium branded media company for the internet. Our share repurchases underlie our belief in the value of AOL and our strategy.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 14 percentage points to 25.2% from the year earlier quarter. Over that time, margins have contracted on average 10.1 percentage points per quarter on a year-over-year basis.

Revenue has fallen in the past four quarters. Revenue declined 7.2% to $542.2 million in the second quarter. The figure fell 17% in the first quarter from the year earlier and dropped 24.2% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company topped expectations last quarter after falling short of forecasts in the second quarter with a loss of 4 cents versus a mean estimate of net income of one cent per share.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the fourth quarter has moved down from 28 cents a share to 15 cents over the last ninety days. The average estimate for the fiscal year is 5 cents per share, down from 49 cents ninety days ago.

Competitors to Watch: Google Inc. (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corporation (NASDAQ:MSFT), IAC/InterActiveCorp (NASDAQ:IACI), Demand Media Inc (NYSE:DMD), News Corporation (NASDAQ:NWSA), The New York Times Company (NYSE:NYT), CBS Corporation (NYSE:CBS), and, Inc. (NASDAQ:BIDU).

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(Source: Xignite Financials)