AOL Subscribers Drop Even As Advertising Revenues Rise 26 Percent

AOL's first quarter 2006 earnings were impacted by a loss of more subscribers than analysts expected, even as parent company Time Warner Inc. reported a slight rise in earnings yesterday.

AOL revenues dropped 7 percent to $2 billion in the quarter because of a 13 percent drop in subscription revenues. Time Warner revenues rose 1 percent to $10.5 billion.

AOL lost 835,000 U.S. subscribers and 147,000 subscribers in Europe from the fourth quarter of 2005 to the first quarter 2006. The sharp drop in subscribers was more than analysts predicted.

Pali Research analyst Richard Greenfield wrote in a research note on the earnings that he had expected AOL to lose about 550,000 subscribers in the quarter.

Still, a 26 percent increase in advertising revenues to $81 million offset the subscriber loss.

Goldman Sachs analyst Anthony Noto expects the advertising growth trend to continue. "We have seen the beginning signs that advertising will at some point return the segment to top line growth," Mr. Noto wrote in a research note on Time Warner's earnings.