AOL Profit Beats Estimates on Growth in Digital Ad Revenue

Analysts Now Expecting Accelerating Revenue and Profit

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AOL CEO Tim Armstrong.
AOL CEO Tim Armstrong. Credit: Jason Alden/Bloomberg

AOL's first-quarter profit beat analysts' estimates as the owner of the Huffington Post and other websites increased global advertising revenue.

Profit excluding some items was 34 cents a share, the New York-based company said, surpassing the 32-cent average of analysts' estimates compiled by Bloomberg. Revenue rose 7.2% to $625.1 million, above the $594.3 million average prediction. The shares rose in pre-market trading.

AOL's fastest-growing business is digital advertising, and almost half of online display ads on its websites are now sold through automation. Last month the company unveiled technology that helps marketers decide where to best spend their money, putting it in direct competition with two leading web ad companies, Google and Facebook.

Sales at AOL's platforms unit, which includes digital advertising, grew 21% to $279.8 million.

"The primary takeaway is that their platform is starting to scale," said James Cakmak, an analyst at Monness, Crespi, Hardt & Co. who has a buy rating on the stock. "We're in a position to see accelerating revenue and profit as we progress through the year."

AOL rose as much as 5.5% to $41.55 before the U.S. markets opened. Through Thursday, the shares had dropped 3.5% from the close Monday after Goldman Sachs Group Inc. lowered its recommendation on the stock to sell, citing steepening competition in advertising technology and news content. Competition with companies like Facebook and news and lifestyle outlets such as BuzzFeed and Vice Media could reduce AOL's market share in each respective business, according to Debra Schwartz, a Goldman Sachs analyst.

CEO Tim Armstrong has been investing in AOL's websites to broaden their global audience. The Huffington Post, for example, has recently introduced sites in Greece and India.

Net income dropped 25% to $7 million, or 9 cents a share, last quarter, dragged down by expenses to cut sales jobs, interest costs related to convertible notes and the impact from currency swings.

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