UPDATE 3-AOL revenue drops 26 percent on slumping ad sales

* Q3 EPS $1.60 vs $0.70 year ago

* Could return to growth in second half of 2011- CEO

* Advertising revenue declined 27 pct

* Total revenue fell 26 pct

* Shares up 5.7 pct in morning trade
(Adds executive and analyst comments, share price)

Jennifer Saba

NEW YORK, Nov 3 (BestGrowthStock) – AOL Inc’s (AOL.N: ) quarterly
revenue fell 26 percent because of steep declines in search and
display advertising but its top executive indicated growth could
return next year.

AOL shares rose as much as high as 9 percent in morning trade
on Wednesday after Chief Executive Tim Armstrong’s comments.

“I would hope AOL is growing at industry advertising rates at
the second half of 2011,” he said on a conference call with
analysts.

Armstrong has been trying to turnaround the company, known
for its dial-up Internet access business, into an media and
entertainment powerhouse.

While AOL’s third-quarter profit (Read more your timing to make a profit.) rose more than expected, it
has struggled to boost its ad revenue throughout the year.

“The market reaction is a little surprising to me,” said
Clayton Moran, an analyst with the Benchmark Co. “(There) is
still evidence of meaningful decline in the business and it
wasn’t significantly better than prior projections.

“I think it’s a little bit aggressive to give AOL the benefit
of the doubt at this point in time,” Moran said.

The steep decline in revenue suggests that the company still
needs to attract advertisers willing to spend big on the website.
Advertising revenue fell 27 percent to $292.8 million on declines
in search, display and third-party ads.

Overall, revenue fell to $563.5 million, compared with the
$557 million analysts polled by Thomson Reuters I/B/E/S had
expected.

By contrast, far larger web rival Google Inc (Read more about Google Stock Analysis) (GOOG.O: )
reported a sharp rise in search and display advertising revenue,
while Yahoo Inc (YHOO.O: ) showed stronger display advertising
sales.

AOL’s subscription revenue also dropped, falling 26 percent
to $244.8 million.

Earnings from continuing operations totaled 93 cents a
share.

As a stand-alone company, AOL has been immersed in a blur of
sales, launches and acquisitions, including purchasing the
influential technology blog TechCruch for about $30 million.

The company committed $50 million to build out Patch, a
network of local community sites totaling 500 this year.

In recent days it introduced a redesign of its home page
where video plays a starring role. The company also released new
platform Project Devil that incorporates bigger cleaner ad
formats into the site.

AOL’s income rose to $171.6 million, or $1.60 per share,
helped by asset sales, including its investment in Kayak and its
ICQ operations. In the year-earlier period, it posted income of
$74 million, or 70 cents a share.

When discontinued operations and other one-time items are
taken into account, AOL earned 82 cents a share in the quarter,
surpassing the 48 cents a share analysts had expected, according
to Thomson Reuters I/B/E/S.

Shares of AOL are up $1.46 to $26.75 in morning trade on the
New York Stock Exchange.
(Reporting by Jennifer Saba and Paul Thomasch; Editing by Lisa
Von Ahn and Derek Caney)

UPDATE 3-AOL revenue drops 26 percent on slumping ad sales