"Investors have gotten used to disappointment from AOL especially in the forward outlook," said Benchmark analyst Clayton Moran. "Mainly there are no negative surprises in this quarter... and the forward outlook seems to be more stable."
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Prior to Wednesday's rally, AOL shares were 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.
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)