AOL said on Thursday it would buy back $250 million of its stock, a move presumably intended to boost confidence in the shares, which fell 32 percent in two days.
After the announcement, the shares were up nearly 16 percent.
The drop had wiped out $518 million in value, since the company reported second-quarter results on Tuesday that missed profit expectations amid weak advertising growth.
AOL Chief Executive Tim Armstrong said during a call with analysts on Tuesday that a buyback was under consideration but that the company would likely concentrate on growth.
I believe the stock is undervalued, and I think our operational results will be the fastest way for us to bring the value of the stock up.
AOL has been in a turnaround mode since it was spun off from Time Warner in December 2009 after one of the most disastrous mergers in recent times.
The company is attempting to reshape itself into an online media and entertainment powerhouse with a growing dependence on advertising revenue as its lucrative subscription dollars from its dial-up business melts away.
AOL has had several shake-ups over the course of Armstrong's leadership, including the July ouster of its top advertising executive, one-time Google executive Jeff Levick.
It reported that second-quarter advertising revenue rose 5 percent, but analysts were expecting bigger gains in display ad revenue. The slow growth suggested rivals like Google and Facebook are taking share.
AOL's board said the company plans to repurchase shares over the next 12 months.
Shares of AOL were up 15.8 percent at $11.82 in early trade on Thursday on the New York Stock Exchange.
(Reporting by Jennifer Saba; Editing by Steve Orlofsky)