AOL posts $1B-plus loss on accounting charge; CEO cites turnaround efforts for revenue decline

AOL posts huge 2Q loss on accounting charge

SAN FRANCISCO — Internet company AOL Inc. reported a $1 billion-plus loss for the second quarter on Wednesday because of charges for a decline in its share price and the sale of properties such as social networking site Bebo and instant messaging service ICQ.

The New York company is in the midst of a turnaround effort under CEO Tim Armstrong, who is looking to shift AOL from relying on a shrinking dial-up Internet business to finding growth in online ad sales.

But since splitting from Time Warner Inc. in December, the company has shown few concrete signs of progress.

The latest quarterly results showed advertising revenue fell at an even quicker rate than in the first quarter. And its subscription dial-up Internet business continued to erode.

The company reported a net loss of $1.06 billion, or $9.89 per share, in the April-June period. That included $1.4 billion in write-downs on the Bebo sale and declines in AOL’s share price.

AOL had reported net income of $90.7 million, or 86 cents per share, in the second quarter a year ago.

In an interview, Armstrong said that the goodwill charge doesn’t point toward problems at AOL, but rather indicates that “the patient is getting healthier.”

“If you look underneath it, it’s really about cleaning up what happened during the AOL-Time Warner years,” he said.

AOL bought Time Warner at the height of the dot-com boom back in 2001, hoping that Time Warner’s TV and magazine content would fit with AOL’s dial-up Internet business. But the rise of speedier broadband Internet connections started killing off AOL’s main revenue source. After years spent trying and failing to integrate the two companies, Time Warner Inc. finally spun off AOL.

The change has not been easy, and AOL’s second-quarter revenue is the latest indication that the company still has much work to do as it works to turn itself around. In the April-May quarter, AOL’s revenue fell 26 percent to $584.1 million from $791.5 million a year ago. Analysts surveyed by Thomson Reuters expected higher revenue of $602.1 million, on average.

Advertising revenue fell by 27 percent to $296.9 million. Armstrong said much of this decline stemmed from AOL’s efforts to get rid of ad products and operations that may be contributing to its revenue but not to its profit.

Overall, he said, the online advertising market is recovering from last year’s slump, and he expects next year to be even stronger than this one.

“I think our results are a reflection of what we’re doing to make AOL a healthy company, rather than what’s happening in the industry,” he said.

Meanwhile, revenue from AOL’s subscription dial-up Internet business also fell 27 percent to $260.2 million. This business has steadily declined for years as consumers gravitate to speedier broadband Internet services.

Despite the large quarterly loss and drop in revenue, Armstrong remained resolute about AOL’s chances for survival, saying he believes the company has “moved the needle from ’survive’ to ‘thrive’” in the past year.

Clayton Moran, a Benchmark Co. analyst, echoed Armstrong’s positive take on the quarter, saying that while AOL faces plenty of challenges it looks much better than it did a year ago.

“I think you’re beginning to see through all the reshaping and reorganization of the company; you’re beginning to see a little light at the end of the tunnel,” he said.

AOL shares rose 50 cents, or 2.4 percent, to $21.62 in midday trading.

AP Business Writer Andrew Vanacore in New York contributed to this report.