AOL ad sales rise, but Patch websites weigh on profit

Tue Nov 5, 2013 1:55pm EST
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By Jennifer Saba

(Reuters) - AOL Inc reported higher-than-expected third-quarter revenue on increased advertising sales, but earnings fell sharply because of challenges at its network of community news websites known as Patch.

The digital media and entertainment company said on Tuesday it took a pre-tax restructuring charge of $19 million and an impairment charge of $25 million, both related to Patch, sending income down 90 percent to $2 million, or 2 cents per share.

Excluding those items, EPS was 55 cents compared to 22 cents in the year ago period.

Shares of AOL climbed almost 8 percent in early morning trade on Tuesday to $41.76.

Investors welcomed cuts at Patch because they have long eyed it as a problem spot for AOL. Chief Executive Tim Armstrong, who helped start Patch before he went to AOL, made a big bet on the network of local sites dotting communities throughout the United States. Over the years, AOL ploughed more than $150 million in Patch.

But in recent quarters AOL has retreated, making deep cuts in the money-losing operation, and in August it cut the Patch staff by half, to about 500 employees. The company is looking for partners to either operate the network or a buyer who would take control.

Armstrong, who is also listed as AOL's chief operating decision maker, told Reuters, "we're essentially open to the best outcome for Patch ... we are still working through the process there."

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The AOL logo is seen at their office in New York November 5, 2013. REUTERS/Andrew Kelly