WALL STREET ON AOL'S EARNINGS: Meh

We haven't had a chance to dig into the numbers yet, but analyst Victor Anthony of Topeka has.

He's not impressed.

For the first time in a while, AOL failed to beat analysts' revenue estimates, mainly because of unexpected weakness at its third-party ad network business, which is AOL's fastest growing division.

The good news is that the company's display advertising business has returned to growth, and AOL is making plenty of money.

Thus, Wall Street's short-term dreams aside, AOL is continuing its startling turnaround, which recently drove the stock through $40.

Here are Victor Anthony's highlights:

• Revenue was in line to slightly below Street; EBITDA Above Due to Reduced Corporate Expenses; Adj. EPS In-line with TCM but Below Street. Reported revenue of $538.3mm, +1.7% YoY (+3.9% YoY in 4Q12) missed our $547mm estimate, and depending on the consensus number quoted, either missed or slightly beat, i.e., FactSet quoted consensus as $541mm, Street Account quoted $539.9mm, and AOL is quoting $537mm. We will say roughly in-line to slightly below consensus. Irrespective of what number we point to, AOL's streak of meaningful beats vs. expectations came to an end this quarter. Domestic display growth of 6% YoY (up from -3% YoY in 4Q12) was solid, but was overshadowed by a $20mm revenue miss at AOL Networks. Driving display revenue growth is a meaningful positive and this quarter's growth rate is only 3pts below the 9% YoY growth reported by the IAB for industry display revenues in 4Q12. Adj. EBITDA of $105.3mm (19.6% margin) was $2.6mm ahead of our $102.7mm estimate and ahead of the FactSet consensus of $100.5mm. EBITDA benefited from a $12mm sequential reduction in corporate expenses. Adj. EPS of $0.41 was in-line with our estimate but below the $0.44 consensus.

• · Domestic Display Growth. Domestic display revenues grew 6% YoY on the strength of greater impressions from video, Devil, and mobile, in that order, and an increase in pricing from Devil, video, and mobile, in that order. Global display advertising grew 7.8% YoY, with International display growth of 26% YoY.

• · AOL Networks Underperformed. Revenues of $160.9mm, +8.1% YoY and down 12.2% QoQ, missed the TCM/Consensus estimate of $180mm/$182mm, and decelerated meaningfully from 36.5% YoY in 4Q13. It appears that AOL sold more of its owned inventory and there was a shift in revenues from Networks to Brands. OIBDA loss of $2.5mm, missed our $1.8mm profit estimate and the consensus of $5mm due to investments in video and their SSP and DSP platforms.

• · Brand Group Benefits from Selling More Owned Inventory. Revenues of $189.6, +13.9% YoY, were ahead of the TCM/Street estimates of $176mm/$172mm. As we noted, it appears that AOL sold more of its owned inventory rather than through AOL Networks. OIBDA loss of $4.9mm, improved from a loss of $16.8mm in 1Q12, and was ahead of the consensus estimate of ($8.0)mm.

• · Subscriber, In-Line. Revenue of $165.8mm, down 9% YoY, was in-line with expectations, and was driven by a 14.5% decline in subs, the slowest pace of decline in several years, 1.9% churn, and a 7.5% YoY growth in ARPU.

• · Search Growth Deceleration. Revenues of $98.1mm, +9.5% YoY, declined 5.3% QoQ, and decelerated meaningfully from the 17.2% YoY growth in 4Q12.

• · Zero Share Repurchase. AOL did not repurchase shares in 1Q13 likely due to the accelerated stock repurchase agreement, which was completed 4/22. AOL has a $100mm share repurchase authorization in place, 3% of the market capitalization.