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AOL explains weak third quarter

Firm slims down; aims sights on at content, ad growth

AOL CEO Tim Armstrong was nothing but candid in reporting his company’s third quarter results on Wednesday. The message: AOL is still clearly a work in progress less than a year after being spun off from Time Warner.

The numbers would certainly highlight that point. Revenues overall fell 26% to $563.5 million with ad revenues declining by 27% across search, display and third-party network to $293 million. The steep decline come as other big Internet companies like Google and Yahoo! are reporting large gains in advertising.

“AOL is not a great investment if you are looking for quarter over quarter results,” conceded Armstrong. “But we hope you stick with us.” He said he is pushing as quickly as possible to improve operations. “The clock is on the field here,” Armstrong added.

One bright spot in Wednesday’s report was that net profits more than doubled to $172 million, largely on the company sale of AOL’s stake in travel website Kayak and of its position in messaging service ICQ. While it wasn’t part of the third quarter results, AOL said it sold on Oct. 29 a portion of its office campus in Dulles, Va., for $144.5 million.

Revenues from subscriptions fell 26% in the quarter to $245 million, as the number of access subscribers now numbers around 4 million, down from 8.7 million at the beginning of 2008.

Armstrong boasted that during the third quarter AOL relaunched AOL.com, Moviefone and Stylelist and expanded its local news service Patch to 133 new towns. In addition, AOL focused on content in September by purchasing syndicator 5 Minutes, Ltd., tech news website TechCrunch and Thing Labs for $97 million. Armstrong said AOL’s strategy is to create “a magical experience for consumers. Underline magical.”

What’s more, “we are maniacally focused on execution,” said Armstrong, including removing costs. Operating expenses declined $159.3 million in the quarter. On the company’s ad woes, Armstrong said “we know ads here” so the focus is on platform and the sales force.

In early trading on Wedneseday morning, AOL shares were up 67 cents to $25.96.

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