Time Warner reported its third quarter results on Wednesday and revealed that the AOL business continues to slide. On the bright side, AOL's results could have been worse.
Time Warner's results (statement) were decent all things considered. Time Warner reported flat revenue at $11.7 billion with earnings of 30 cents a share--31 cents excluding a charge. Wall Street was expecting earnings of 27 cents a share. Time Warner did cut its outlook for the year, but that guidance was expected. The message: Time Warner's cable and networks business is offsetting AOL's decline.
AOL, which is basically a footnote in the Time Warner empire, reported third quarter revenue of $1 billion, down 17 percent from a year ago. Much of that decline is attributed to a 26 percent decline in subscription revenue (the dial-up business). However, AOL's advertising revenue didn't fare much better. Ad revenue in the third quarter fell $33 million, or six percent from a year ago.
In a statement, the company said:
Driving the decrease in Advertising revenues were declines in display advertising on AOL Network sites and sales of advertising on third-party Internet sites, offset partially by an increase in paid-search advertising.
Operating income was down 9 percent, or $27 million, to $268 million. Meanwhile, AOL had 110 million average monthly unique visitors and 54 million page views in the third quarter. That's down from 111 million average monthly uniques and 56 billion page views in the second quarter. As of Sept. 30, AOL service had 7.5 million dial-up subscribers, down 634,000 from a year ago and 2.6 million from a year ago.
AOL under normal circumstances wouldn't warrant any attention, but given there are Yahoo talks about a potential tie-up the health Time Warner's ailing online business are closely watched.
Merrill Lynch analyst Jessica Reif Cohen said in a research note:
AOL revenue fell more than anticipated -17% (vs. Merrill Lynch estimates -13%), but the EBITDA decline was actually not as drastic (-7% vs. MLe -12%). This suggests that Advertising weakness (-6% vs. MLe -1%) was indeed concentrated in its lower margin third party business. Notably, AOL was able to keep margins flat sequentially, indicating cost cutting efforts remain ongoing. Sub losses were -634k (vs. -610k MLe, -604k sub loss in 2Q08 and -851k sub losses in 3Q07).