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AOL Tanks as Media Sites Fail to Show Profits

NEW YORK ( TheStreet) -- Tim Armstrong, chief executive of AOL (AOL) keeps trying new things, but until his many acquisitions start to make money, the company's stock price will continue to tumble.

AOL was losing 9.2%, dropping to $37.63 after the New York-based media company reported an operating loss for its division that includes Huffington Post, TechCrunch and Patch, its ambitious, locally-focused news operation. The $4.9 million in the red for the unit for the quarter comes after Armstrong has invested heavily in those properties to drive advertising and subscription revenue.

The loss held AOL's earnings per share for the quarter to 41 cents, missing an average forecast of 45 cents per share, according to a Bloomberg survey of 14 Wall Street analysts.

Even as overall revenue grew 2% for the quarter to $538.3 million, the unit that includes AOL's dial-up online subscription service reported a 9% decline in sales. That's been a trend for while, and underscores the need for HuffPost, TechCrunch and Patch to eventually show a cumulative profit.

For the moment, the subscription service keeps the company afloat. AOL's membership group generated an operating profit of $146.4 million for the three months ended March 31. That cash helps to buy Armstrong more time to tinker with his media sites and a string of new original programming.

The question remains whether Armstrong will have sufficient success selling advertising for a slate of shows introduced at the recently completed Digital NewFronts. That programming includes a show on professional dancers produced by Sarah Jessica Parker and another based on the celebrity lifestyle of Nicole Ritche.

One of these days all of those AOL online subscribers will realize they can get an e-mail address for free from outfits such as Google (GOOG) and Apple (APPL).

Until then, Armstrong will have a bit more time to make his acquisitions profitable. But not much.

-- Written by Leon Lazaroff in New York

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