Why AOL Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of web veteran AOL (NYSE: AOL  ) were flying today, jumping as much as 14% today after posting surprise revenue growth in its fourth quarter.

So what: For the first time in eight years, the online media company said its revenue grew, thanks to strong international advertising. Sales edged up 4% to $599.5 million, well ahead of expectations of $571.8 million. Net income jumped 57% to $35.7 million, or an adjusted profit of $0.55 a share, beating estimates of $0.41. The surprise revenue growth seems to indicate that AOL's strategy of investing in media sites like The Huffington Post and TechCrunch is paying off following its separation from Time Warner in 2009.

Now what: The shift in revenue growth is certainly a promising sign as the company transitions to a third-party ad sales business, helping other websites sell ad space using automated systems. Amazingly, AOL still derives 30% of its revenue from its dial-up Internet service, sales of which declined by 10% this quarter and are sure to continue to disappear. That should continue to put downward pressure on overall revenue. Future success will also rely on Patch, a local-news site it developed with more than $300 million.

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