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AOL posts higher 3Q net income on gains, cost cuts

NEW YORK CITY — AOL Inc.’s profit grew in the third quarter thanks to gains on investments it sold during the quarter, but revenue declined sharply as online ad sales fell and its and its dial-up Internet access business continued to falter.

Nonetheless, the company’s results seemed to give investors some reassurance that AOL is on the right track in its plans to turn its business around. Shares rose $1.60, or 6.3 percent, to $26.89 in morning trading.

The troubled Internet company has struggled since before its split from Time Warner Inc. late last year. Led by CEO Tim Armstrong, a former Google executive, it is trying to revitalize itself to rely on online advertising as subscribers steadily abandon the Internet access business that made it famous in the 1990s.

AOL said Wednesday its net income rose to $171.6 million, or $1.60 per share, in the July-September quarter, up from $74 million, or 70 cents per share, a year earlier.

But much of the growth was from cost cuts and gains from the company’s sale of its investments in the travel website Kayak and the instant messaging business ICQ.

AOL had shown few signs of progress in the first half of the year, though Armstrong said in August that the company has “moved the needle from ‘survive’ to ‘thrive.'”

On Wednesday, Armstrong said the company “continued on the path towards better health” through acquisitions, dispositions, product improvements and site relaunches.

AOL’s revenue dropped 26 percent to $563.5 million from $763.9 million. The latest figure was slightly above Wall Street estimates of $557 million, according to a Thomson Reuters poll.

The company’s adjusted earnings from continuing operations were 93 cents per share. Analysts were expecting 48 cents, but a Thomson Reuters representative could not immediately say whether the two numbers were comparable.

Advertising revenue dropped 27 percent to $292.8 million — a change AOL attributed in large part to changes it is making to reduce operations in Europe, the absence Bebo, which it sold in the second quarter, and overall declines in search and display ad revenue. The company is working to shed unprofitable businesses even if they contribute to higher revenue.

Competitors have been faring better: so far this quarter, Google Inc., Yahoo Inc. and IAC/InterActiveCorp all reported growth in online advertising. Research firm eMarketer estimates that overall online advertising spending grew nearly 12 percent year-over-year in the third quarter, to $6.15 billion.

Revenue from AOL’s dial-up Internet business declined 26 percent to $244.8 million. This business has been dwindling for years due to the rise of faster Internet services.

At the end of the quarter, the dial-up business had 4.1 million subscribers — a drop of 24 percent from last year. At its peak in 2002, AOL had 26.7 million subscribers.