AOL Profit Edges 1% Lower; Revenue Climbs

By Dow Jones Business News, 
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AOL Inc. said its second-quarter profit edged down 1%, as higher costs offset a 20% increase in global advertising revenue at the online content and ad- technology firm.

The results suggested that AOL Chief Executive Tim Armstrong's big bet on "programmatic" automated advertising-sales technology appears to be paying off.

AOL's earnings were bolstered in large part by the company's "platforms" business--that is, AOL's collection of tools and services aimed at helping Web publishers sell ads. AOL reported that its "third party"--non-AOL--platform revenue surged 60% year-over-year.

While much of that growth was due to the inclusion of Adap.tv, the Web video-ad-technology company that AOL acquired last year, third-party platform revenue still grew a healthy 20% excluding Adap.tv.

On a conference call with analysts, Mr. Armstrong declared that AOL was "taking share" in the programmatic market, which is dominated by Google Inc. as well as a range of other ad-technology firms.

"We want to be at the center of the mechanization of the global advertising business," he said.

AOL's profit ticked lower to $28.2 million, or 34 cents a share, from $28.5 million, or 35 cents a share, a year earlier. Its cost of revenue increased $58 million from a year earlier, essentially the revenue it has to split with Web publishers who are using its services for ad sales.

Even so, the results were better than analysts expected.

If there was any area of concern for AOL in second quarter, it may have been display advertising on AOL's own properties, which slipped by 1% compared with the year earlier period. Some in the ad industry have wondered whether AOL's focus on programmatic could cannibalize AOL's premium ad sales efforts, which rely on a human sales force.

But AOL said that display revenue was actually up 9% year-over-year excluding its Patch local-news business and other "shuttered or de-emphasized brands." AOL sold a majority stake in Patch earlier this year.

During the earnings call, Mr. Armstrong repeatedly emphasized that AOL was seeing ad-inventory pricing growth in the double-digit range. "We are back to industry competitive growth," he said. That has come from a focus on "higher priced advertising," he said.

Internet-access subscription revenue slid 7% to $155.1 million, as the company saw a 9% decline in subscribers during the quarter.

Write to Mike Shields at mike.shields@wsj.com and Erin McCarthy at erin.mccarthy@wsj.com

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