AOL shares sink as its websites still lose money

Wed May 8, 2013 1:41pm EDT
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By Jennifer Saba

(Reuters) - AOL Inc shares tumbled 10 percent on Wednesday after it posted another loss in its content group, reviving concerns that the company's profits were still mostly coming from a shrinking dial-up platform.

The stock's plunge was the second-worst decline in 18 months, and follows what had been a 67 percent rise over the last year.

"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."

For the past several years, AOL has been trying to transform itself into a media destination with a stable of sites like the Huffington Post and Patch. It's a change from the days when it was best known as an Internet access business with free-trial CDs that clogged mailboxes.

AOL Chief Executive Tim Armstrong has invested heavily in content, including plowing well over $100 million into Patch, a group of hyperlocal websites that covers neighborhood news and events.

Even with all of that spending, the legacy subscription service is still the most profitable part of the company. The membership group, which includes subscriptions, posted operating profit of $146.4 million in the quarter.

AOL's media sites turned in an operating loss of almost $5 million. Those sites, which include Patch, Huffington Post, Engadget and TechCrunch, lost almost $17 million in the year-ago period.

"Patch is still a money losing proposition," said Ron Josey, an analyst with JMP Securities, who estimated Patch lost $100 million last year.   Continued...