While the company overall reported an increase in revenue and net profit, the AOL unit saw subscriptions and advertising revenue flag, and its operating income fell as a result. Shareholders focused on the bad news and punished the stock.

The company said that it is currently at odds with the US Securities and Exchange Commission over whether its accounting practices relating to a big transaction with Bertelsmann AG were appropriate.

AOL said in a statement that the SEC thinks it should not have accounted the $400m deal as advertising revenue. AOL disagrees, and is challenging the decision. However, it admitted it may be forced to recant and restate its earnings.

In addition, while the wrangle continues, the SEC is unlikely to approve any registration statements AOL attempts to make – specifically, it may block the planned IPO of Time Warner Cable Inc until the matter is resolved.

Also yesterday, AOL said its US subscriber base dipped 1.2 million in the second quarter compared to last year, and was down 846,000 sequentially, to give it a total of 25.3 million. In Europe, subs were up 238,000 on last year, but down 52,000 sequentially, at 6.2 million.

Of the 846,000 US accounts closed during the quarter, 45% were non-payers shut down by AOL. The remaining 465,000 left of their own volition. The company added 300,000 new broadband subscribers in the quarter, for a total of 2.2 million.

EarthLink, the largest competitor to break out similar numbers, reported on Tuesday a 4.9% annual decline in subscribers for the same quarter. The ISP ended June with 5.04 million people paying for internet access.

EarthLink added 102,000 broadband subscribers during the quarter, an 11% sequential increase, compared to AOL’s 15% increase. EarthLink had 993,000 broadband subscribers at the end of June, approaching half AOL’s figure.

AOL’s revenue was down 6% on last year at $2.3bn. It operating profit was down 9% at $431m. Overall, AOL Time Warner reported operating profit down 15% at $1.3bn, on revenue up 6% at $10.8bn.

Source: Computerwire