AOL’s Ad Revenue Rebounds

NEW YORK America Online’s operating income before depreciation and amortization rose 13 percent to $487 million in the second quarter, as revenue increased 2 percent to $2.18 billion from the prior-year period.

After posting consecutive quarterly declines, the Time Warner Internet unit’s Q2 advertising revenue grew 23 percent, or $42 million, led by paid search. In Q1, AOL experienced a 5 percent drop in ad revenue, an improvement over last year’s double-digit decreases, which were due in part to the expiration of multiyear ad deals signed during the dot-com heyday.

Its Q2 operating income rose 31 percent to $276 million.

The AOL results were released this morning as a part of Time Warner’s second-quarter earnings report.

Despite AOL’s Web advertising turnaround, the Dulles, Va.-based company still lags its chief competitors in terms of growth. Last quarter, MSN’s ad revenue rose 35 percent, or $85 million. Yahoo!’s Q2 revenue from marketing services skyrocketed 215 percent to $691 million. The latter attributed the increase to boosts in its organic marketing services revenue, as well as incremental revenue from acquisitions, including Overture, the commercial search company it purchased last October.

AOL continued to lose subscribers in Q2, as did MSN, as people migrated to high-speed Internet access or lower-cost, dial-up competitors. As of June 30, AOL had 23.4 million domestic subscribers, down 668,000 for the quarter. The decline reflects a decrease of 753,000 members in trial and retention programs, offset partly by an 85,000 increase in billed subscribers.

The AOL service in Europe had 6.3 million members at the end of June, down 88,000 for Q2.

The Securities and Exchange Commission continues to investigate a range of transactions principally involving the AOL unit, including advertising arrangements and the methods used to report subscriber numbers. The SEC has determined that the accounting of two related transactions between America Online and Bertelsmann AG should be adjusted. Time Warner said that it continues to believe that the accounting for those transactions was appropriate. The company said, however, that it might learn additional information as a result of its own review, discussions with the SEC and/or the SEC’s ongoing investigation that would then lead it to reconsider its views.

The company also said that it recently began a review of the accounting related to the consolidation of, and equity accounting for, its interest in AOL Europe prior to January 2002. As a result of the probes, financial restatements could be necessary.

Shares in Time Warner (TWX) closed on the New York Stock Exchange today at $16.65, down 26 cents or 1.5 percent. The stock’s 52-week high is $19.30 and low is $14.66.