EXPOSED: Here’s AOL’s Big Weakness

AOL Inc. (NYSE:AOL) this morning reported better-than-expected profit and revenue for the first quarter despite lower premium ad sales in the U.S.

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Revenue in the January through March period fell 4 percent to $529.4 million, beating analysts’ average forecast of $526.5 million. Total advertising revenue grew 5 percent on strong growth in third-party network ads and international growth, but display advertising fell 1 percent.

“I wasn’t surprised that much,” Benchmark analyst Clayton Moran said of AOL’s display ad revenue. “We saw similar weakness from Facebook and Yahoo (NASDAQ:YHOO).”

“It could be an industry thing or that Google is gaining so much (ad revenue) share that other parties are losing,” Moran said.

Since its spinoff from Time Warner (NYSE:TWX) in 2009, AOL has been focusing more on advertising as a source of revenue as it reinvents itself as a media destination while pulling out of its once-lucrative dial-up service. AOL has bought high-profile media properties like Huffington Post and TechCrunch, while selling the majority of its patents to Microsoft (NASDAQ:MSFT).

AOL is also facing a proxy fight with one of its largest shareholders, Starboard Value, which contends that the Internet company is not doing enough to return value to shareholders. Starboard has nominated a slate of three directors to the AOL board.

AOL said today first-quarter subscriptions revenue fell 15 percent. Net income rose to $21 million, or 22 cents per share, from $4.7 million, or 4 cents per share, in the year-earlier period.

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