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AOL reverses steep fourth-quarter loss but revenue drops 17%

By Mike Musgrove
Washington Post Staff Writer
Thursday, February 4, 2010; A14

Reporting quarterly results for the first time in a decade as an independent company, AOL said Wednesday that it earned $1.4 million in the fourth quarter, reversing a steep loss from a year earlier.

The Web publisher, which Time Warner spun off in December, said revenue fell 17 percent in the quarter, to $809.7 million, as sales fell in both of its major businesses lines -- online advertising and dial-up Internet access.

Chief executive Tim Armstrong said in a conference call that the company was emerging from a difficult transitional year, as it gained independence from its former corporate parent, reduced its employee head count and labored to devise a new strategy. In the fourth quarter of 2008, AOL lost $1.93 billion as it recorded a hefty one-time charge.

Discussing the results with analysts during Wednesday's call, Armstrong elaborated on that strategy, calling AOL a "content-focused company." As an example, he pointed to the company's tech news blog, Engadget, as being important enough to its audience of gadget aficionados to attract advertising partners such as Sprint. That blog was also the "official" blog of the recent consumer electronics show, Armstrong said.

In an interview Wednesday, Armstrong characterized the quarter in relatively positive terms. "I wouldn't consider it 'winning' for us," he said, "but in terms of getting us back on track, I think it was a very good place for us to start."

AOL said its ranks of dial-up subscribers fell 27 percent from a year earlier, continuing a long shift away from its roots as an Internet-access portal. Now based in New York, the company maintains a significant presence in Dulles, where it formerly had its headquarters.

Armstrong and AOL's chief financial officer, Artie Minson, said during the call that the company is anticipating that its subscriber numbers will continue to shrink and is betting it will be able to rebuild itself largely based off of a portfolio of sites that have an ardent following.

"It's a strategy that we're all very passionate about," Armstrong said. "We put the heartbeat and the will to win back in AOL."

To bolster the content available on its collection of sites, AOL acquired last month a Nashville-based video production firm, StudioNow, for $36.5 million, paid in cash and AOL stock.

Tech industry analyst Roger Kay gave Armstrong and the company a mixed report card. "I've got to give him some credit for doing as well as he did," Kay said.

Still, Kay was skeptical of AOL's new strategy as a Web publisher, given that the company never benefited from its years as a part of Time Warner, a company with ample supplies on the content front. "They couldn't get content from a professional provider; now they're going to do that on their own? I'd say the odds are against them."

Last month, AOL laid off 1,000 workers as part of a corporate plan to reduce its head count by a third. The company said Wednesday that it will close more of its overseas offices in the coming year.

Shares of AOL rose 2.4 percent to close at $25.23 Wednesday.

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