July 25, 2012 / 11:24 AM / 5 years ago

AOL swings to quarterly profit on patent sale

(Reuters) - The sale of its patents to Microsoft helped AOL Inc AOL.N swing to a profit in the second quarter from a loss a year ago.

<p>The AOL logo is seen on the outside of the building housing the companies corporate headquarters in New York May 28, 2009. Time Warner Inc on Thursday made official plans to separate its AOL division sometime around the end of this year, a widely expected move that sheds one of the media company's weakest divisions. REUTERS/Lucas Jackson</p>

The company reported second quarter net income on Wednesday of $970.8 million, or $10.17 per share, following a net loss a year earlier of $11.8 million, or 11 cents per share.

It was the first time in four years that AOL reported growth in operating income before depreciation and amortization.

“On the top line, it’s better than expected,” said Ron Josey, an analyst with Think Equity. “We actually think it shows encouraging signs.”

In recent months, the company has been aggressively giving back to investors. AOL won a bitter proxy battle against activist hedge fund Starboard Value and has pledged to give the entire proceeds of its $1 billion patent sale to Microsoft back to shareholders.

Total revenue fell 2 percent to $531.1 million, but beat analysts’ expectations of $519.4 million, according to Thomson Reuters I/B/E/S.

Still, AOL is having problems gaining traction in a key area for the company - display advertising.

While advertising revenue increased 6 percent it was mainly due to ad sales in the United Kingdom and Canada and from its third party ad network platform Advertising.com.

Revenue for display ads in the United States was flat, underscoring the challenge it faces as it seeks marketers to buy big, pricey ads that appear on web pages.

In the U.S., online advertising spending in the second quarter increased almost 24 percent, according to research firm eMarketer.

In the previous quarter, display advertising revenue fell 1 percent in the U.S.

Adjusted for items, AOL reported a loss of 3 cents per share. Analysts expected earnings per share of 10 cents.

Reporting by Jennifer Saba in New York and Sayantani Ghosh in Bangalore; Editing by Bernadette Baum

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