Low Expectations Help AOL Beat Street

In its first earnings since the Time Warner (NYSE: TWX) spinoff, AOL (NYSE: AOL) beat analysts’ estimates with a $1.4 million profit — versus a $1.9 billion loss in Q408 — as revenues declined 17 percent — just beating the most pessimistic analyst estimates. Meanwhile ad revenue declined only 8 percent, with display in particular down a mere 3 percent. Remarking on the results, CEO Tim Armstrong, who has steered AOL to independence, noted the long road the company has in turning its fortunes around. In a statement, he said: “2009 marked the closing of an important chapter in AOL’s history and the opening of a new chapter that we are passionately pursuing. We have a clearly defined strategy, and we enter 2010 incredibly focused on day-to-day execution.”

AOL’s performance reflected a problem that has been building for a long time: the downward spiral of subscribers to its dial-up service. Subscription revenues were 307.4 million, a drop of 28 percent. AOL subscribers tend to do more searches than non-subs, and as a result, the company saw lower revenue per-search as the number of subs slid 27 percent to just under 5 million. International display fell 22 percent, dragging revenues down even further, offsetting the meager 1 percent gain in U.S. display revs.

Third party network revenues slipped just 1 percent, also reflecting lower revenue of AOL’s international operations, a situation Armstrong had warned of often during conference appearances over the past month. Furthermore, since the spinoff in early December, AOL has made a point of “de-emphasizing” the cheaper third party ad net business in favor of building up its premium display ad offerings.

The company also highlighted $107 million in restructuring costs. On an adjusted basis, AOL’s EPS was $0.71. Thomson Reuters (NYSE: TRI) analysts had been expecting $0.63 EPS on an adjusted basis.