More NewsInternet Ad Market Drags Down America Online

Internet Ad Market Drags Down America Online

Although the company as a whole will perform about as expected for 2002, predictions for America Online are sinking.

The difficult Internet advertising market will result in lower-than-expected revenues for America Online, the troubled interactive unit of media giant AOL Time Warner , according to revised estimates released today.

The company said that full-year 2002 advertising and commerce revenues — which account for about a third of America Online’s revenues — are expected to come in at $1.7 billion, although they may dip up to 5 percent lower. As a result, EBITDA is expected to range between $1.7 billion and $1.8 billion.

Previously, executives had given guidance that the unit would post EBITDA of between $1.8 billion and $2.2 billion. A year ago, the unit posted EBITDA of $2.3 billion, on $9.5 billion in sales.

The lowered forecast for America Online, won’t, however, drag down the rest of the company’s results. according to the firm, which reiterated its expectations for the year. However, EBITDA growth for AOL Time Warner now is expected to be on the low end of its expected 5 percent to 9 percent range — about $9.5 billion to $9.9 billion.

Current Wall Street consensus places net earnings at $0.20 per share for the coming third quarter, and $0.87 per share for the full year. Last year, the company posted net earnings of $1.18 per share.

Full-year revenue growth is still expected to fall within the previously announced 5 percent to 8 percent range, AOL added.

The news is the latest earnings disappointment out of the unit, which saw revenues slide 3 percent to $2.3 billion during second quarter, pushing EBITDA down 27 percent. The decrease came about in large part due to a 42 percent decline in advertising and commerce sales, to $412 million.

During the second quarter, improved subscription sales from AOL’s old-media assets helped cushion the interactive unit’s impact on the entire company’s earnings.

At the same time as the company’s last quarterly earnings announcement in July, Chief Executive Richard Parsons also revealed that the U.S. Securities and Exchange Commission and the Justice Department had launched investigations into the company’s accounting practices. He also acknowledged a controversial Washington Post report that called into question the validity of $49 million in online advertising deals, while adding that AOL had begun an internal inquiry into the matter.

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