Shares of AOL (NYSE: AOL) were trading as much as 9% higher this morning, after the company posted its third-quarter financials. But I'm not buying the boost.

Revenue and earnings may have clocked in ahead of Wall Street expectations, but this remains a company in a serious state of decline. Here's why I'm not joining the bulls by the spiked punch.

  • Revenue still fell by 26% to $563.5 million. Laggards Yahoo! and Marchex (Nasdaq: MCHX) are at least holding their ground, and even rudderless ValueClick (Nasdaq: VCLK) is expected to post a softer decline than AOL when it reports tonight.
  • Advertising revenue actually fell harder than subscription revenue. Try wrapping your head around that for a bit. AOL may have lost 24% of its access subscribers, but the company's online advertising business -- the reason that Google (Nasdaq: GOOG) ad chief Tim Armstrong was brought on to lead the company -- is doing even worse.
  • Heads are turning over the $171.6 million in net income, but a good chunk of that is coming from asset sales. Operating income actually fell 34% to $80.9 million. In other words, operating margins continue to deteriorate.

The numbers could have been worse. If you're holding AOL, you're not going to dump it on the report. However, the stock wouldn't be taking off today if there weren't a greater appetite to buy in than to cash out -- and that's troublesome.

What are the green AOL investors expecting to see here?

Obviously, no one is buying AOL for the Internet-access cash cow it used to be. AOL is now down to its last 4.1 million subscribers, after peaking with 26.7 million paying customers eight years ago. Its subscriber ranks will never bounce back, yet AOL continues to wait before selling that business to EarthLink (Nasdaq: ELNK) or United Online (Nasdaq: UNTD).

Online advertising is supposed to be the company's savior. AOL has done neat things with the hyperlocal Patch, and I still think Armstrong is the right guy for the job. However, there's something wrong when the company can maintain its unique visitors, but fails in both stickiness and monetization. Its rumored combination with Yahoo! makes sense, but there's nothing in this morning's report that justifies the smaller AOL calling the shots.

Back off the punchbowl, bulls. I didn't just call for a round of shots.

Geesh. Who is going to drive these people home?

What does AOL have to do to regain its 1990s swagger? Share your thoughts in the comment box below.