AOL Inc. reported its best quarterly revenue growth in eight years because of strong search and advertising sales, and its shares rose more than 7 per cent.
The company said on Friday that total revenue rose 4 per cent to nearly $600-million (U.S.) in the fourth quarter, beating analysts’ estimates of $573.7-million, according to Thomson Reuters I/B/E/S.
Advertising revenue, an important metric for the company as it moves away from subscription-based dial-up services and emphasizes its media properties like the Huffington Post and Patch, rose 13 per cent to $410.6-million.
It was advertising sold through AOL’s third-party network that helped boost overall revenue. Revenue jumped 37 per cent to $183.5-million at AOL Networks, a market to sell inventory on behalf of publishers.
As of this quarter, AOL introduced new segmentation that provides more clarity on its business units.
While advertising sales represent AOL’s future growth, the subscription unit – now classified as the “membership group” that includes the legacy dial-up service – is still providing the bulk of profit.
Excluding special items, operating income before depreciation and amortization for the membership group was $158.7-million for the quarter – representing the vast majority of the total.
“It’s not great to see so much of the bottom-line contribution coming from the revenue segment in decline,” said Evercore analyst Ken Sena.
While Sena said the company made “steady progress” over the past two years, “it still has a ways to go.”
AOL’s board also authorized the repurchase of $100-million in stock.
Net income rose to $35.7-million, or 41 cents per share, in the fourth quarter from $22.8-million, or 23 cents per share, a year earlier. Earnings per share were in line with analysts’ estimates.
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