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AOL Surges on Advertising Revenue Increase Despite Profit Lag

NEW YORK (TheStreet) -- AOL (AOL) was jumping Tuesday after the owner of the Huffington Post and TechCrunch reported that advertising revenue in the third quarter doubled from the previous three-month period, a sign that CEO Tim Armstrong's strategy to remake the company as an online ad-selling and buying platform is showing some initial success.

AOL was surging 8.9% to $42.15, extending its 2013 advance to 42%.

Nonetheless, net income attributable to AOL was equal to just 2 cents a share, well off the 55 cents a share forecast by Wall Street analysts. The gap was due in part to restructuring costs such as the pullback of, the money-losing local news and information site that Armstrong helped create but has struggled to gain traction. In August, Patch closed roughly 400 of its 900 local Web sites, firing about 350 employees or 40% of its workforce.

Free cash flow for the quarter was 10% lower than the same period in 2012.

Total revenue for the third quarter ended Sept. 30 grew 6% from the same period a year ago to $561 million, beating the consensus analyst forecast of $549.5 million, according to a Bloomberg survey. Advertising revenue rose 14%, double the rate in the second quarter, to $386 million; revenue from subscriptions, however, slipped 7% to $161.6 million.

Armstrong is aiming to augment the company's programming at Huffington Post, TechCrunch and its Web portal with the company's array of advertising platform led by, Ad-Tech and Adap.TV, the online video technology service acquired in August for $405 million in cash (Armstrong's largest acquisition since taking over the top job in 2009). acquisition generated $17.6m in revenues for 25 days after the Sept 5 close, suggesting a "healthy pace," Ross Sandler, a media analyst at Deutsche Bank, wrote in an investor report.

-- By Leon Lazaroff in New York.

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