By Laura Petrecca
NEW YORK - While scheduling a business lunch in late 2010, Huffington Post co-founder Arianna Huffington and AOL CEO Tim Armstrong each had a question for the other.
Huffington, who was hosting the meal at her home, asked whether there was anything he didn't eat. (The answer: mushrooms.)
Armstrong asked whether he could bring along his chief financial officer. That made the AOL honcho's intentions clear, and he swiftly expressed them when the group gathered.
"Up front, before the first course was served, he said he wanted to buy The Huffington Post," Huffington said in an interview at her New York office this week.
Soon after that meeting - during halftime at Super Bowl XLV in Dallas - the deal was signed. AOL paid $315 million for the site.
Together, the companies would create "a digital destination that delivers unmatched experiences for both consumers and advertisers," Armstrong said when the deal was announced.
Two years after that acquisition, and nearly four years after Armstrong took the helm, AOL still faces challenges in courting consumers and advertisers. But it is finally showing progress.
On Friday, AOL reported its first increase in quarterly revenue in eight years. Revenue rose 4%, to $599 million, in the fourth quarter. Net income, bolstered by a $16.8 million gain from the sale of overseas assets, was $35.7 million, or 41 cents a share. In 2011, AOL earned $22.8 million, or 23 cents a share.
"We have walked through the valley of the turnaround and have gotten to growth," Armstrong said during Friday's earnings call.
Managing an evolution
Created as a Web portal and Internet access provider, AOL today has evolved into an ad-supported technology and media giant.
To achieve its goals, AOL cut costs, while ramping up consumer- and advertiser-friendly content such as video and apps. Ad revenue for the company hit $411 million in the fourth quarter, up 13% from the same period in 2011. Full-year ad revenue was up 2.8% to $1.3 billion.
The Huffington Post acquisition has helped power its growth.
Across AOL's properties, the level of monthly U.S. unique visitors was 110 million in December, up from 107 million in December 2011, but down from the 112 million in December 2010, according to tracker comScore. The Huffington Post's U.S. monthly unique viewership has steadily grown - to 46 million in December from 25 million two years earlier, according to comScore figures provided by Huffington Post.
AOL doesn't break out profit on The Huffington Post or other media divisions, but for the first time on Friday, it disclosed results of a "brand group" category that includesThe Huffington Post, AOL.com, TechCrunch, local-news provider Patch and other content-focused assets.
That group's revenue grew 4% to $213 million for the fourth quarter. Adjusted operating income before depreciation and amortization was down 34% to $8.8 million for the quarter. The dropoff was primarily the result of increased investment in editorial staff and sales representatives and higher marketing expenses, AOL said.
Despite its recent revenue growth, AOL still faces hurdles. It lost share in the overall U.S. digital ad market in recent years, according to industry tracker eMarketer. AOL had a 2.5% share of all U.S. digital ad revenue in 2012, down from 2.8% in 2011 and 3.3% in 2010.
U.S. digital ad spending grew 14.9% in the fourth quarter to $10.58 billion, according to eMarketer estimates. Google has the biggest share - with more than 41% of all digital ad revenue in the U.S. Yahoo has the second-biggest share.
A 'cutting edge' personality
Like other top media executives, Arianna Huffington is a frequent attendee at advertising and technology events. But the Huffington Post Media Group editor-in-chief is well-known outside the industry. She is present at major political outings and featured in society pages. Her Greek accent and outgoing personality are so familiar that she is sometimes impersonated on NBC's Saturday Night Live.
Unlike AOL, which had a "stodgy and old" image in recent years, Huffington and the company she co-founded are cutting edge, says Robert Passikoff, president of brand loyalty consulting firm Brand Keys.
Passikoff likens AOL to "a kid in high school who isn't cool anymore." But by aligning with The Huffington Post, the AOL brand acquires some rub-off hipness. "There is a halo effect," he says.
The Huffington Post brand, as well as sibling unit TechCrunch, also tend to attract more tech-savvy users than the traditional AOL brand, notes Ben Schachter, an analyst at Macquarie Securities.
TechCunch and The Huffington Post help AOL draw consumers who aren't tethered to laptops, but use mobile devices such as tablets and smartphones, and will view alternative ad-supported content such as videos, he says.
Armstrong told USA TODAY that The Huffington Post's strong brand awareness, as well as its focus on innovation, gives Huffington Post "game-changing global potential."
Huffington: 'Best of both worlds'
Asked if she would want to buy her company back, Huffington says that "there is no reason to even contemplate anything like that."
"We have the best of both worlds," she adds. "We are a stand-alone entity within a great parent company that is very supportive of our big dreams."
But for The Huffington Post to keep its relevancy, she says, "it has to keep growing and evolving and engaging readers in new ways."
To that end, Huffington Post is:
• Extendingglobal reach. Last year, The Huffington Post launched six international editions. It's now in the UK, Canada, France, Spain and Italy. Next up are areas in Germany, Africa and Asia. "We're going to go from international to global," says Huffington Post Media Group CEO Jimmy Maymann.
• Adding more videos. Video network Huff Post Live launched in August. It provides 12 hours of content, such as interviews with well-known personalities, on weekdays.
• Going mobile. Last year, The Huffington Post introduced an iPad app for HuffPost Live and an app for an iPad magazine. It also launched a wellness-focused "GPS for the Soul" iPhone app this year.
• Increasing lifestyle content: The site will bolster its coverage of personal topics such as divorce, weddings, books and travel.