The media giant's loss is largely the result of a major balance sheet write-off, which became necessary because of new US accounting rules relating to the plummeting value of its stock.
The fortunes of the company have tumbled dramatically. The combined stock market worth of the company has plunged from the post-merger value two years ago of $290bn to today's $85bn.
Previously, companies have been allowed to write off the cost of acquisitions over a number of years. This is no longer the case and AOL was required to write off the cost of the AOL and Time Warner merger two years ago in one go, leading to a loss larger than the GDP of many countries.
AOL beat analyst expectations with its earnings per share, which rose to 18 cents, compared with 16 cents in the same period a year ago. Analysts had been expecting 14 cents.
The loss came as no surprise to Wall Street, which has already seen its stock drop 41% this year as the advertising downturn bit hard. Last night, AOL shares closed up rose 19 cents to $19.30.
On a healthy note, earnings rose 3% to $2.05bn, helped by a strong performance from its film and TV units. In particular, the box-office smash 'Harry Potter', which amassed box-office takings of $960m to make it the second-highest grossing film of all time. 'Harry Potter' was followed by fellow fantasy epic 'Lord of the Rings: Fellowship of the Ring', which took $830m.
The internet side of AOL's business performed less well. While new America Online subscribers rose more than 1m on last year to 34.6m, it was hit by the advertising downturn. For the quarter, the America Online unit reported revenue of $2.3bn, unchanged from the same period a year earlier. The unit's earnings before tax, depreciation and amortisation measure fell by 14.6% to $433m from $507m.
AOL reduced its full-year earnings estimates for its online division to 5%-9%, from a range of 8%-12%.
In a statement, the company said: "Except for online advertising, the performance of our businesses remains at least as strong as we expected when we provided our earlier outlook."
Elsewhere within the group there was more good news. Cable news network CNN performed well recording large audience gains with the number of total viewers rising by 55% year-on-year.
Incoming CEO Richard Parsons said: "We had a lot of good news, but one area of disappointment. The area of disappointment was online advertising. The weakness of the internet advertising business is still a challenge, however, and we have taken decisive steps to address it."
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