MONDAY's analysis....Can AOL Beat the Whisper Number?
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TODAY
I. I. A N A L Y S I S
Can AOL Beat the Whisper
Number?
Will Ziff-Davis Find a Way
to Unlock Value?
Update: UCBH Holdings is
Emerging as an Interesting
Demographic Play
MICROCAP JOURNAL:
Lechters, Trimark
Newsprint Producers
Prepare for Consolidation
Schlumberger/Transocean:
Why Both Benefit
PMC-Sierra's Results Set
the Standard for Other
Techs to Follow
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Last 7 Days Archived
iionline.com
by Eliot Walsh (7/19/99)
This Thursday night, America Online (NYSE: AOL -
Quotes, News, Boards) will announce fourth quarter
results. According to I/B/E/S, the No.1 Internet Service
Provider should earn $0.11 per share--a 332% gain over
the year-ago quarter. The whisper number, the unofficial
number analysts expect earnings to match, is about
$0.13.
'Expanded subscriber growth will be the key to beating
the estimates,' says Terry O'Brien, senior technology
analyst with Richmond, VA-based Branch, Cabell. He
expects to see earnings of $0.12 per share, noting that
AOL's intense drive to add products such as
Drkoop.com and services such as the ICQ
instant-messaging community to its business has
contributed to AOL's staggering $1.2 billion in advertising
revenues. The company will soon overtake leader NBC
for the position of the No. 1 media company in the world
based on ad revenues.
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The astonishing number of consumers flocking to AOL
properties bears out O'Brien's assertions. Including
CompuServe, AOL boasts 19 million paid subscribers,
making it the dominant ISP worldwide. But that's only
part of the story.
On July 15, AOL announced that more than 750 million
messages are sent through its Buddy List and its ICQ
service--every single day! To put that into perspective,
that amount is 50% greater than the number of letters
sent by U.S. Mail on a daily basis.
AOL's Buddy List and Instant Messenger services
together boast 40 million registered users, while ICQ
adds another 38 million to the audience. 150,000 new
people register for these services every day.
All those users have been contributing to AOL's towering
brand-name awareness, obviously one of its most critical
assets.
But Jim Preissler, who covers AOL for PaineWebber, is
less intrigued with Thursday's numbers than in the
discussion and Q & A that will accompany them. And
while he sees the company doing very well, he doesn't
anticipate that the company will crush estimates. 'As far
as metrics go, we foresee total revenues of $1.3 billion,
with the breakout number being online services, which
see at $930 million,' he says. 'We put [advertising and
e-commerce revenues] at $290 million, and enterprise
[the Sun Microsystems/Netscape e-commerce
development business] at $113 million. That's a net
income of $113 million, of $0.11 per share.'
Beyond the earnings, Preissler wants to hear what the
company has to say about three issues in particular:
(1)'where we are in the scheme of things' as far as DSL
is concerned; (2) the recent cable broadband court
decisions at the local level; (3) the company's
experimentation with rebates for PC's in exchange for
ISP service agreements.
For the near term, Preissler envisages the company
taking 'a more brute force' approach to earnings, the
concept being that this will foment 'steady strength and
consistency' for the stock. He likens that kind of stock
performance as 'more like a Microsoft than a Yahoo.'
Will that help ease the stock's volatility? If investors
catch on to the company's new posture, he believes it
will.
The Branch, Cabell Research Profile for AOL notes that
the company has 'beat analyst estimates made a year
in advance (our measure of performance) by at least
70% for the last five quarters-a significant
accomplishment.'
But in recent quarters, investors have become much
more sensitive to earnings news than they were just a
year or two ago. When, in June 1998 AOL missed fourth
quarter estimates by a mile, the stock hardly budged.
How times have changed. Some may remember that in
the week before 3Q99 earnings were announced April
27, investors bid up shares of AOL from$128.69 to over
$162 on April 26. The company reported $0.09 the
following day, meeting estimates. But the day after that,
shares of AOL dropped $10. Within a week or so, they
were trading for between $120-$130 apiece.
Bottom line:
look for America Online to at least match earnings
estimates. Whether they blow out earnings or not,
Thursday's numbers should demonstrate that
management is running a tremendously solid juggernaut
that's poised to continue to grow exponentially and
dominate the ISP market. Whether that will be good
enough to keep investors long is much more debatable.
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