AOL +3.9% premarket; cost cuts improve profitability

|About: AOL Inc. (AOL)|By:, SA News Editor

On a non-GAAP basis, AOL posted Q3 EPS of $0.55, soundly beating a $0.35 consensus. Non-GAAP EPS excludes $19M in restructuring costs related to the Patch layoffs and $29M in asset write-downs, among other things. Free cash flow was $64.6M, +13% Q/Q and -10% Y/Y.

Ad revenue rose 14% Y/Y to $386M (69% of total). Excluding $17.6M contributed by Adap.tv following the closing of AOL's acquisition of the video ad network on Sep. 5, Y/Y growth was 8% vs. 7% in Q2.

Global display ad sales +5% Y/Y, even with Q2's growth rate. Search ad growth fell to 3% from 8%, but third party network growth (exc. Adap.tv) rose to 17% from 9%. Including Adap.tv, growth was 32%.

Subscription (dial-up ISP) revenue fell 7% Y/Y to $162M after dropping 5% in Q2. Subscribers -3% Q/Q and -13% Y/Y to 2.51M, but ARPU +1% Q/Q and +9% Y/Y to $20.15. Churn was 1.4%, flat Q/Q and down from 1.8% a year ago.

AOL continues to depend on the ISP business for most of its free cash flow. The Brand Group (AOL properties) had adjusted OIBDA of just $10.6M, and the ad network unit came in at -$7.1M. But the ISP unit had adjusted OIBDA of $149.8M, -4% Y/Y.

Monthly unique visitors for AOL properties totaled 115M, -1M Q/Q and +4M Y/Y. Monthly uniques for AOL's ad network (boosted by Adap.tv) totaled 196M, +4% Q/Q and +5% Y/Y.

Thanks in part to cost cuts, G&A spend fell 20% Y/Y to $78.2M.

Q3 results, PR