AOL Struggles Amid Subscriber Growth Concerns
By David Shabelman
Staff Reporter
6/10/99 10:58 AM ET
SAN FRANCISCO -- Wednesday's strong tech-sector performance on the backs of semiconductor equipment makers has given way to weakness in the sector early today. Internet stocks have been mostly lower early, with losses in America Online (AOL:NYSE) contributing to selling in the sector.
Merrill Lynch analyst Henry Blodget released a research note on AOL this morning, and while addressing some concerns, he maintained both his revenue and earnings estimates for the June quarter, though he said he sees no major catalysts for AOL's stock until the fall.
Blodget said there has been some speculation that AOL's subscriber growth in the quarter will be slower than expected, and based on talks he has had with management, he expects growth to be at the low end of the guidance range, which was 750,000 to 850,000 subscribers. He said that such a performance "will likely disappoint some investors," but pointed out that when AOL missed its subscriber target in the same quarter last year, the stock was not hurt.
Blodget said that international subscriber growth is "significantly weaker than expected, perhaps partially as a result of the 'free access' movement in the U.K.," though stronger-than-expected growth in the U.S. is offsetting some of the international weakness.
For AOL's current fiscal fourth quarter, Blodget maintained his earnings estimate of 10 cents a share, compared to the First Call earnings estimate of 11 cents. Shares of the company were down 4 1/8, or 4%, at 106 7/8 in early trading. Merrill has done underwriting for AOL.
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