Online media group AOL Inc. reported first-quarter revenue grew on strength in its advertising business, but shares tumbled on concerns that profits were still mostly coming from a shrinking dial-up platform.
"The core issue with this company is can they make content profitable?" said Ben Schachter, an analyst with Macquarie Research. "What you see every quarter is the only thing making money is the membership group. They are clearly going in the right direction, but we want to see more progress."
AOL posted an operating loss of almost $5 million from its media sites, including Patch, the group of hyperlocal websites, the Huffington Post, Engadget and TechCrunch. AOL spent more than $100 million to get Patch off the ground,
The membership group, which includes AOL's subscription service, posted operating profit of $146.4 million in the quarter. The membership unit includes subscription revenue from its dial-up service, the lucrative but dwindling business.
Schachter said display ad growth was a bright spot in the quarter. Display ads, big splashy campaigns often featured prominently on websites, are an important benchmark for the company.
Overall advertising revenue increased 9 percent to $359.2 billion on an 8 percent increase in global display advertising.
Revenue from the media sites, including Huffington Post, TechCrunch and Engadget, jumped 14 percent to $189.6 million, on higher ad sales.
Total company revenue increased 2 percent to $538.3 million, beating analysts' expectations of $537.1 million, according to Thomson Reuters I/B/E/S.
Net income rose to $25.9 million, or 32 cents per share, from $21.1 million, or 22 cents per share, in the same period a year ago.
Shares of AOL fell $3.91, or 9.4 percent, to $37.51 in midday trading. Its shares have traded in a 52-week range of $24.35 to $43.93. Shares have soared 67 percent in the past 12 months.
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