AOL Doesn’t Disappoint…in Disappointing

By Erin Joyce

By all accounts, investors were expecting glum news when AOL Time Warner released its first quarter results and the world’s largest media company did not disappoint in disappointing.

Driven by a huge goodwill amortization charge left over from the cost of its merger, AOL Time Warner posted a net loss of $54.2 billion, or $12.25 per share, for its first fiscal quarter of 2002.

Revenues during the quarter were $9.8 billion, up 4 percent and helped by a 14 percent growth in subscription revenues across all the company units. The consistent subscriber revenue, which contributed close to half of the company’s revenues at $4.7 billion, helped offset advertising and commerce sales which fell by about 10 percent to $1.8 billion.

The results of the flagship unit AOL, which brought in $2.3 billion in revenue during the quarter, were really two stories, said Richard Parsons, the chief executive officer-elect.

Subscription revenues were up 19 percent, thanks to 1.4 million new members signing on to bring the company’s base of dial-up subscribers to 34.6 million.

“On the other hand, online advertising was a disappointment,” said Parsons, of the advertising and commerce revenues in the AOL unit that fell by 31 percent in the quarter.

Overall, the results were flat, much as the company and analysts had expected.

The results on revenue and cash earnings met or exceeded analysts’ expectations.

Not counting the huge amortization charge due to changes in accounting rules, the company reported a net loss of $1 million, or essentially break-even per share. The results compared to a net loss of $1.4 billion, or 31 cents per share during the same time a year ago.

“Overall, except for online advertising, the performance of our businesses remains at least as strong as we expected when we provided our earlier outlook, and we anticipate that they will collectively drive growth this year,” Parsons continued.

“The weakness of the Internet advertising business is still a challenge, however, and we have taken decisive steps to address it. Bob Pittman, who is now running America Online, will tackle this issue directly.”

Chief Operating Officer-elect Bob Pittman said: “Looking ahead, the key to AOL’s future success is what drove its past success – delivering what consumers want. We have an obvious challenge in the advertising side of the business and turning that around is my number one priority.”

As far as its revenue outlook for the full year went, the company stuck to its theme: “Assume no recovery in the economy.”

The shortfall in advertising revenues, especially online ad revenues, increased more than they expected, company officials said. As a result, they lowered their guidance on cash rearnings growth for the full year to between 5 percent and 9 percent overall, instead of the 8-12 percent range they had given months ago.

For the second quarter (which is historically slow), AOL Time Warner said it expects growth in the mid single digits and flat cash earnings overall.

“As CEO, I will be focused on producing results,” Parsons added during a conference call to discuss the results. “I am also committed to running AOL Time Warner as one company, and will move quickly to take advantage of opportunities.”

For weeks now, concerns about slowing growth and a maturing AOL unit have weighed on the company’s stock price; on Wednesday, before the results were announced, shares of AOL Time Warner closed at $19.30, up slightly from the $19.11 close from the prior trading session. In after hours trading Wednesday, shares were up slightly.

Referring to recent pressure on the company’s stock price and concerns about slowing growth in the AOL unit, Parsons said: “The swirl in my view is out of line with the realities. I remain very upbeat about the future, and anyone who doesn’t believe in (AOL) is making a huge mistake.”

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