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The AOL logo is seen on the company’s corporate headquarters in New York in this file photo. Third-quarter revenue was flat, but beat analysts’ forecasts.

© Lucas Jackson/REUTERS

AOL Inc. reported higher-than-expected revenue and profit on the strongest advertising growth the company has seen in seven years.

AOL said on Tuesday that third-quarter revenue was flat at $531.7-million (U.S.), ahead of analysts' average estimate of $521.6-million, according to Thomson Reuters I/B/E/S.

Advertising revenue rose 7 per cent to $340-million, while subscription revenue for AOL's dial-up services fell 10 per cent to $173.5-million.

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Subscription revenue had its lowest rate of decline in six years.

AOL shares rose 11 per cent to $39.61 in morning trade.

"Things look great," RBC Dominion Securities analyst Andre Sequin said. "This company is continuing to make steps in the right direction."

These trends are helping AOL since its turnaround hinges on getting more online advertising dollars and reducing its reliance on the lucrative but moribund dial-up business.

AOL chief executive Tim Armstrong said in an interview with Reuters that the main focus next year will be on advertising and video, which tends to command higher prices from marketers.

Still, there are troubling signs in the results. Domestic display advertising, where AOL is making a big effort, including splashy acquisitions such as the Huffington Post, fell 3 per cent in the quarter.

That compares with the overall U.S. display ad market estimated to grow more than 20 per cent to $14.98-billion, according to research firm eMarketer.

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AOL's advertising revenue was lifted by search revenue and double-digit growth in third-party network revenue.

Display ads are big, pricey units on Web pages favoured by brand advertisers. Third-party network consists of AOL's, which helps sell ads across other properties. These types of ads typically are lower-cost than those ads known in the industry as premium display.

"We weren't exactly 100-per-cent drilled and focused on the advertising strategy the first half of the year. But we are now," Mr. Armstrong said on a call with analysts.

"I think overall, what you're going to see is an operational improvement around advertising as we get into 2013."

The company, however, has taken a number of steps over the year, including selling some of its patents to Microsoft for $1-billion and returning those proceeds to shareholders.

Shares are up 137 per cent year-to-date.

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Net income was $20.8-million, or 22 cents per share, compared with a year-earlier loss of $2.6-million, or 2 cents per share.

AOL's third-quarter EPS of 22 cents was well ahead of analysts' forecast of 17 cents.

The company raised its estimate for 2012 adjusted OIBDA to about $400-million from $375-million.

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