AOL reports Q1 earnings with progress for Patch as rumors swirl it's selling tech sites

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AOL released its first-quarter earnings today, posting a 5 percent rise in advertising revenue and a 14 percent drop in subscribers to its Internet access business compared to the first quarter of last year. Domestic display ad sales declined by 1 percent, which Peter Kafka says will be "fresh meat for AOL critics" like investment firm Starboard Value, which believes content is "a high cost strategy," that requires "substantial in-house editorial and sales personnel." It also says it thinks AOL's Patch has a "structurally flawed business model."

AOL's first-quarter report says "Patch grew traffic and advertisers over 40% year-over-year and revenue over 100% year-over-year."

During a conference call Wednesday morning, AOL CEO Tim Armstrong said that "there's a lot of noise about Patch" but it remains "a very long value proposition for us." Patch has already booked revenue for 2012 that exceeds revenue booked in 2011 and will be profitable by the end of 2013, in part by lowering expenses, he said. Expenses have been lowered as town and regional staffs have "smartly organized the editorial process." Armstrong also said Patch is planning a new product. Despite that growth, Kafka notes that "Traffic is down 4 percent to AOL's own properties over the last year." Armstrong said that in the first quarter total unique visitors grew, in particular at Huffington Post, Moviefone, Patch and AOL Autos. Huffington Post, he said, had one billion page views from Jan. 1 through March 31. Accompanying information, though, shows unique visitors at AOL properties are down since the second quarter of 2011, when it reported 113 million uniques; this quarter the company reports 108 million.

Late Tuesday, Sarah Lacy wrote that "two independent sources" told her AOL is considering selling TechCrunch and Engadget.

Armstrong denies the report, sort of, in a phone interview with Bloomberg's Edmund Lee.

AOL is looking to expand the technology sites Engadget and TechCrunch by working with another company, and has no “appetite to sell them,” Armstrong said in a telephone interview today. ... “We’re very interested in partnering with someone to invest more heavily in those sites,” Armstrong said, declining to name potential investors.

AOL bought TechCrunch in September 2010 and purchased Engadget in 2005. Lots of tech-journalist intrigue floats just below the surface of Lacy's post: Would TechCrunch founder Michael Arrington buy back his old site? "I am not in the least bit interested," he told Lacy, who also used to work at TechCrunch. Arrington was forced out of TechCrunch after he and Arianna Huffington, whose media empire AOL purchased in February 2011, reportedly clashed over the ethics of an investment fund he'd created (and AOL had invested in). Arrington uses words like "touchy psychopath" when describing Huffington.

TechCrunch also lost CEO Heather Harde, and a number of dispossessed Engadget employees started The Verge after AOL purchased the Huffington Post. AOL is looking for about $70 million for the properties, Lacy writes, which might rule out the Verge's ownership as a suitor: "The Verge’s parent company Vox Media might have access to the capital, but having already hired many of Engadget’s brightest stars, it’s not clear they need to spend $70 million on the rest of them."

On May 4, Mathew Ingram mused on the feasibility of breaking up AOL:

The sale or spin-off of Huffington Post could be bundled together with some of AOL’s other media assets as part of a dismantling of the entire company. The AOL CEO has allegedly been looking at a number of ways of generating some value from the former portal — whose dial-up business is in rapid decline — including a potential merger with the equally moribund Yahoo, a deal that would potentially include asset sales like the recent auction of AOL’s patents.

One key to all of this speculation is Arianna Huffington's role within AOL. Keach Hagey reported last week that Huffington has confirmed she will now oversee only the Huffington Post. She'd been in charge of all AOL's content businesses previously. And Huffington Post continues to sprawl: It announced two new editions, in British Columbia and Alberta, Tuesday. During the conference call, Armstrong noted the company's recent Pulitzer Prize win and called it "an incredible honor" for David Wood, Arianna Huffington and The Huffington Post. Coincidentally, Huffington Post launched on this day seven years ago.

Correction: I misread Lacy's original post; Heather Harde didn't go to The Verge.

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