AOL Crooned, but Did Anyone Listen?

Stop me if you've heard this one before. Yesterday, while pulling up the biggest percentage gainers for the day, I noticed AOL's (NYSE: AOL) name on the list and threw salt in my eyes just to make sure I wasn't dreaming.

For the quarter, AOL lost $0.02, which was a clean $0.04 ahead of expectations. Revenue of $531.7 million also came in ahead of the consensus, but still constituted a 6% drop headlined by a 22% plummet in subscription revenue. If there was any highlight to the report, it was that ad revenue grew by 8%, with global advertising revenue and third-party ads leading the charge.

Is less-bad good?
But what this comes down to is whether we should be rewarding "less-bad" results. The traders have spoken today and said yes. I, on the other hand, think this is just more of the same from AOL.

As Fool colleague Anders Bylund noted yesterday, the strategy AOL's taking is incredibly ironic. The Internet bubble of a decade ago obliterated nearly every company that relied on ad-based revenue. Now, based on CEO Tim Armstrong's strategy revealed yesterday, AOL is going to refocus its efforts on ad-based services.

The ad cliff
Perhaps more concerning than the company's new focus on ad-based services is how poorly some of its competitors have fared this quarter based on their reported ad sales. If the following figures are any indication of things to come, it could just be a matter of time before AOL feels some additional pain.

Source: Associated Press.

Google (Nasdaq: GOOG), Facebook, and Yahoo! are just crushing AOL in search and ad revenue. Since 2007, AOL has seen its market share dip from 10.6% to what is expected to be just 4.2% by the end of this year, according to research firm eMarketer. In this span, revenue has fallen by more than 50% and the company's gross margin has dipped from the high 40% range to the low 30% range over the last 12 months.

So, once again, I ask, is this a case where we should be rewarding a company for simply doing less bad? Based on these results, I think not! Croon all you want, AOL, I'm not listening!

Based on AOL's results yesterday, are you inclined to believe in the company's turnaround? Share your thoughts in the comments section below and consider adding AOL to your free and personalized watchlist to keep up on the latest news with the stock.