A file combination photo shows Arianna Huffington (L) arriving for Glamour Magazine's "Women Of The Year" event in New York on November 11, 2013, and Chairman and CEO of AOL Tim Armstrong smiling during a panel session at The Cable Show in Boston, Massachusetts on May 21, 2012. REUTERS/Carlo Allegri/Jessica Rinaldi/Files

By Jennifer Saba

NEW YORK (Reuters) - It's the holiday season and Arianna Huffington, the influential woman behind the popular news website that bears her name, is busy buying sweaters - some 700 of them - as gifts to her employees.

From brands like J.Crew and White + Warren, the sweaters are placed at the desks of The Huffington Post staffers who can swap or trade them before posing for an annual group photo.

When The Huffington Post was sold for $315 million nearly three years ago, Huffington told her new boss, AOL Inc Chief Executive Tim Armstrong, that they had to uphold the tradition she started when she launched the site in 2005 and personally selected sweaters for her handful of employees.

By the time of the February 2011 takeover, The Huffington Post had 200 employees and was known as a leading source for left-leaning political news.

"I told Tim when we discussed the acquisition the one thing, however big we are, we are able to give sweaters," Huffington, 63, said in an interview early in December.

With AOL's backing - it has injected tens of millions of dollars into the website - The Huffington Post has been able to do much more than give out cardigans every year. Its audience has more than tripled from 25 million people before the AOL deal to 84 million at the end of October, according to comScore data. It has branched out to cover lifestyle, entertainment, business and technology, mushrooming to 60 vertical sites from about 20.

But The Huffington Post has yet to turn a profit for AOL, falling far short of Armstrong's projection at the time of the acquisition that the unit would post $66 million in operating profit in 2013 on $165 million in revenue.

While that has not hurt AOL's share price this year - the stock is up more than 40 percent - analysts said The Huffington Post will become more critical next year to AOL's hoped-for transformation into a digital media powerhouse.

Macquarie analyst Ben Schachter said investors gave AOL's content businesses a pass this year because its dial-up Internet subscriber business - where it made its name almost two decades ago - declined at a slower-than-expected rate. Investors were also happy with a special dividend and stock buyback from AOL's $1 billion patent sale to Microsoft Corp.

"Going forward, things like The Huffington Post and the overall Brand Group will have to show they are real businesses and profitable," Schachter said. "I've been a broken record about it: Can they make content profitably? Up until recently the answer has been 'no.'"

The Brand Group, which includes The Huffington Post, TechCrunch, Moviefone and Patch, reported an adjusted operating income before depreciation and amortization (OIBDA) of $4.6 million for the nine months ending in September. For the same period in 2012, it reported a loss of $41.6 million.

AOL does not break out results for the individual sites. Mark May, an analyst with CitiGroup Research, forecast The Huffington Post will post a loss of about $6 million this year on $100 million in revenue.

AOL executives say The Huffington Post is losing money because they made a deliberate decision to divert advertising revenue back into the business to help it grow, and that the website would be profitable otherwise.

Armstrong, in an interview, said The Huffington Post's loss is narrowing and he expects the business to turn profitable next year, helped by the growth of global editions, video, and lifestyle conferences. He declined to give specific figures.

"Huffington Post has come to the point where it's a non-replicable asset," Armstrong, 42, said. "It would take a lot of effort and a lot of money and lot of years to repeat what we have been able to build with them."

KEYS TO THE CAR

After Huffington and Armstrong shook hands on the takeover at the 2011 Super Bowl in Dallas, the latter justified the hefty price tag - roughly 6.3 times 2011 estimated revenue - by saying The Huffington Post would become the cornerstone of AOL's media aspirations.

But the merger has had rocky moments, in part because of tensions between Armstrong and Huffington, who was put in charge of all of AOL's editorial content. Their strained relationship had to do with culture clashes, differences over the allocation of resources and how the other brands would mesh with The Huffington Post, according to several people familiar with the situation.

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