AOL, Inc. (AOL): This Business Is Crucial. Do You Know What It Is?

When I listened to AOL, Inc. (NYSE:AOL)’s conference call last Wednesday, I was thrown for a loop by the intense efforts company execs made to convince listeners that the seemingly long-suffering Patch network is not on its last leg.

For a second, I even forgot that the call was to discuss the company’s second quarter 2013 earnings! All of the talk about Patch nearly stole the show for me when it came to the glimmer of good news from the company. It also nearly masked a major concern that continues to plague the company.

AOL, Inc. (NYSE:AOL) posted a profit as total revenues increased 2% to about $538 million. That was largely due to advertising revenue increasing 9% to roughly $360 million. Also important were increases in the company’s display and search revenues, which increased 8% and 9%, respectively. Together they totaled $238 million.  One piece of good news was that AOL, Inc. (NYSE:AOL) beat analysts’ estimates by coming in with earnings per share of $0.32. That’s a 45% increase over last year’s figure.

Earlier this year I wrote that AOL, Inc. (NYSE:AOL) is a stock that investors shouldn’t give up on. Consider this: its shares are up about almost 30% so far this year, and they have more than quadrupled in the past 21 months, according to Investor’s Business Daily.

Mitigating this good news were declines in the company’s subscription revenues, which fell 9% to $166 million. In fact, the company reported declines of 15% in terms of its domestic AOL, Inc. (NYSE:AOL)-brand access subscribers. And, yes, for those of you reading this with a puzzled look and thinking, “AOL still has subscribers?!” In fact, its dial-up service still accounts for most of its profits. The number of subscribers during the first quarter was roughly 2.6 million, a 15% decrease from the first quarter of 2012.

That being said, AOL has watched rivals such as Yahoo! Inc. (NASDAQ:YHOO) and Microsoft Corporation (NASDAQ:MSFT) also struggle to maintain in the face of the growth of Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB). The main area where it is losing ground deals with display advertising.

In January, I told you about how Google Inc (NASDAQ:GOOG) led the pack last year when it came to display ad revenue share. Well little has changed, as the search engine giant is expected to continue to hold the top spot this year with $3.11 billion in ad revenue, according to eMarketer. Facebook Inc (NASDAQ:FB), which lost the top spot last year, will rake in $2.75 billion in 2013, up from $2.18 billion last year.