AOL is to sell its ICQ instant messaging service to Digital Sky Technologies, the Russian internet company, for $187.5m, or less than half the $400m it paid for ICQ in 1998.

Shares of AOL sunk more than 12 per cent after it also reported a stunning 58 per cent decline in first quarter net profit and a 23 per cent drop in revenue year on year.

The move is part of AOL’s drive to shed non-core assets and difficult transition to fortify its position in an internet industry dominated by Google, Facebook and Microsoft.

ICQ is the leading instant messaging service in Russia and other global markets, including Germany, the Czech Republic and Israel. It has more than 32m unique visitors each month.

Tim Armstrong, chief executive of AOL, told the FT the company made difficult decisions this year to ensure long term growth. Internet display advertising revenue, which fell 13 per cent in the first quarter and likely even further for the rest of the year, will not show positive net growth until the beginning of next year.

“We’re making a decision to not optimise the short term, but (focus on the) long term,” Mr Armstrong said.

The restructuring of its ad business led to sharp declines across the company. Search ad revenue fell 27 per cent. Its deal with Google, which provides search engine functions for AOL ends this year and it plans to have a new deal with Google or a rival such as Microsoft in place this summer or autumn, the company said.

ICQ’s geographic footprint makes it a good fit with Digital Sky Technologies, which is the largest internet company in Russian-speaking and eastern European markets.

DST already owns Russia’s largest email provider and online gaming company, as well as three of the country’s leading social networking sites.

“Instant messaging completes the picture and creates a monopolistic internet platform in Russia, which can be used for distribution,” said Yuri Milner, chief executive of DST.

Mr Milner said DST was looking to create a business in Russia, a little like that of Tencent, one of China’s largest internet companies, which uses its instant messaging service as a base from which to sell online games and other items.

Tencent recently bought a 10 per cent stake in DST, bringing together the two internet powerhouses of emerging markets. DST, in turn, has stakes in a number of western internet companies including Facebook, Zynga and Groupon.

AOL, which spun off from Time Warner in December, is also looking to shed assets such as Bebo, the UK social networking site it bought for nearly $1bn in 2008. A decision to sell or shut down will be made by May.

Despite selling assets at big discounts to its purchase prices, Mr Armstrong said recent sales valued the properties at an industry average of about 10-times multiple of earnings.

AOL reported a first quarter net profit of $34.7m, or 32 cents per share, from a profit of $82.7m, or 78 cents per share, a year earlier.

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