AOL's Second-Quarter Ad Revenue Drops 19%

Portal Sells Messaging Service ICQ as Part of Continuing Turnaround

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NEW YORK (AdAge.com) -- AOL reported a 19% decline in online ad revenue in the first quarter, and it announced the sale of instant messaging service ICQ for $187.5 million in cash to Russian investment firm Digital Sky Technologies.

AOL has sold ICQ to Russian investment firm Digital Sky Technologies for $178.9 million in cash.
AOL has sold ICQ to Russian investment firm Digital Sky Technologies for $178.9 million in cash.
The sale of ICQ is part of AOL's ongoing effort to shed non-core assets while it focuses on transforming itself from a dial-up internet access company to a publishing company. AOL recently disclosed that it put Bebo, the social network it acquired for $850 million in 2008, on the block, and it will either sell the company or shut it down in May.

CEO Tim Armstrong said the decline in ad revenue was related to the restructuring of AOL's sales force and lower inventory on AOL's properties. AOL suffered a slight traffic decline across those properties but it is also selling less ad inventory across them to reduce ad clutter. Revenue was also down 17% across the third party sites served by AOL's ad network, Ad.com.

Mr. Armstrong said that when he arrived at AOL in May 2009, the properties were being over-monetized and, he added, "I saw how that movie ends." He said the company is being managed now for the long term. "We are not happy with lagging the overall ad market, but I am happy with the decisions we are making about our future," he said.

Overall AOL revenue declined 23% to $664.3 million from $864 million a year ago, driven by the shedding of more dial-up access subscribers, a once very profitable business that has been shrinking for years. Those users, though, represent a high-margin business for AOL and also drive search revenue, which was down 27% in the quarter.

AOL reported a net profit of $37 million in the quarter, down 58% from $82.7 million a year ago, and it reduced its operating costs by $137 million by both closing unprofitable foreign operations and reducing headcount to 5,000 employees from about 7,000 a year ago.

Proceeds from the sale of ICQ will give Mr. Armstrong more cash to work with, but it won't affect the bottom line until after the deal closes later this year. DST, which invested $200 million in Facebook nearly a year ago, is also invested in the leading Facebook third-party app maker Zynga and location-based marketing firm GroupOn. AOL bought the company that owns ICQ back in 1996, and the service remains popular in Russia, Germany, Israel and Eastern Europe. AOL expects the deal to close in the third quarter.

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