AOL Inc's revenue dropped 6 percent because of its dwindling dial-up Internet access business, but the decline was not as severe as expected, due to an increase in advertising revenue.
The company reported on Wednesday revenue of $531.7 million, beating analysts' estimates of $524 million, according to Thomson Reuters I/B/E/S.
(Third-quarter) results were ahead of expectations and while this should be positive for the stock near term, we are still awaiting confirmation of a turnaround, Youssef Squali, an analyst with Jefferies, wrote in a note to clients.
AOL shares are down more than 40 percent year to date.
The company, which Time Warner spun off after a disastrous decade-long merger, is trying to regain its status as a popular online destination that attracts advertising dollars from the likes of auto companies and consumer packaged-goods makers.
Total advertising revenue rose 8 percent to $317.7 million on the strength of its Ad.com network and international display advertising.
Overall display advertising -- representing big splashy ads that appear on Web pages and command higher rates -- rose 15 percent in the quarter.
But AOL's share of display advertising has slipped as it faces stiff competition from Yahoo, Google and Facebook, which are all going after the same ad dollars.
Research firm eMarketer estimates that AOL's share in the United States will fall to 4.2 percent this year, down from a share of 10.6 percent in 2007.
That is compared to Facebook, which is expected to surpass Yahoo's share for the first time this year reaching a 16.3 percent share, according to eMarketer.
On top of it, AOL is losing subscribers to its lucrative access business. Subscription revenue, which represents 36 percent of total revenue, declined 22 percent to $192 million.
AOL reported a third-quarter loss of $2.6 million, or 2 cents per share, from continuing operations, compared with a profit of $171.6 million, or $1.61 per share, a year ago.
Analysts were expecting a loss of 6 cents.
(Reporting by Jennifer Saba in New York and Sruthi Ramakrishnan in Bangalore; Editing by Joyjeet Das, Maureen Bavdek and Derek Caney)