AOL plummets after cutting earnings forecast

August 9, 2011 07:00 PM

Not quite the comeback act.

Shares of AOL plunged even as the broader market rallied from Monday's steep sell-off. The web services company reported a second-quarter loss citing weaker-than-expected advertising growth and cut its annual earnings forecast, raising concerns that the company may not be able to turn itself around following the 2009 spinoff from Time Warner (TWX). AOL is aiming to regain its former status as one of the world’s most popular online destinations by transforming itself into an advertising-supported digital media business, acquiring companies such as online news and commentary website Huffington Post for $315 million this year and technology blog TechCrunch last year. Global ad sales rose 5% in the quarter that ended June 30, the first overall gain in that area since 2008.

But that growth was not enough to offset AOL's declining revenue from its fading subscription business, which sells dial-up Internet access and other online services. The company, which has been losing Web-access customers for more than eight years, said subscription sales declined 23% in the quarter. Display ad revenue rose 14%, while analysts predicted 16%. AOL reported a loss of $11.8 million, or $0.11 a share, compared with a year-earlier loss of $1.06 billion, or $9.89 a share. Revenue slipped 8.4% to $542.2 million.

Analysts on average expected per-share earnings of $0.04 on $530 million in revenue. AOL lowered its forecast for adjusted operating income before depreciation and amortization to $340 million to $370 million for the year. That fell short of some analysts’ estimate of $424 million. The company is still waiting for sales at Patch, an ambitious project consisting of 800 local community websites, to kick in.

AOL (AOL : NYSE : US$11.19), Net Change: -3.88, % Change: -25.75%, Volume: 14,853,192

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