AOL: Massive second quarter loss, but 'getting healthier'

AOL's second quarter results were largely a disaster after the company posted a $1.05 billion net loss due to a writedown on the sale of Bebo and ICQ. Simply put, AOL is a work in progress.

AOL's second quarter results were largely a disaster after the company posted a $1.05 billion net loss due to a writedown on the sale of Bebo and ICQ.

The company, which executives freely admit is a work in progress, reported a net loss of $1.05 billion, or $9.89 a share, on revenue of $584 million. That loss was inflated by a $1.41 billion goodwill charge as AOL shed non-core assets like Bebo.

Backing out that big charge, Thomson Reuters has AOL beating earnings estimates with earnings of 51 cents a share, relative to estimates of 41 cents a share. Revenue of $584 million fell short of the $602 million Wall Street expected.

What may be more worrisome for AOL is that advertising revenue is falling as fast as its subscription business, a unit that's supposed to slowly die off. AOL's advertising revenue was $296.9 million, down 27 percent from a year ago. Subscription revenue was $260 million, also down 27 percent. In theory, subscription revenue is supposed to fall with advertising growth picking up the slack.

AOL said its advertising slide is due to improving the consumer experience and optimizing products. Roughly $70 million to $110 million of the second quarter ad decline was attributed to the product tweaks.

Simply put, AOL is a big work in progress. Last week, AOL executive Brad Garlinghouse called the company a "startaround" with a lot of work ahead of it.

In a statement, AOL CEO Tim Armstrong didn't dispute that notion. "We continued our efforts to successfully reposition AOL for growth and the company is getting healthier every day,” said Armstrong, noting that internal and external trends are improving. In the second quarter, AOL reorganized its content business into so called super networks.

The company did generate free cash flow of $129.1 million, down 44 percent from a year ago.

Add it up and AOL is in the early innings of its restructuring and Armstrong has the go-ahead to take big bath charges and purge the company as he sets out to remake it.