America Online 4th-Qtr Profit 13C-Shr: Earnings Instant Insight
Expected Market Reaction:
Rise. America Online Inc., the world's largest online service, had a fiscal fourth-quarter profit of $156 million, or 13 cents a share, for the quarter ended June 30.
That beat the estimate of 11 cents a share, the average forecast of analysts polled by First Call Corp. The results met the so-called whisper number of 13 cents a share, the latest unpublished forecasts.
Revenue rose 46 percent to $1.4 billion from $943 million in the year-earlier quarter. AOL had a pro forma profit excluding charges of $58 million, or 5 cents a share, in the year-earlier quarter. The year-ago results are stated as if the company's $10.2 billion acquisition of Netscape Communications Corp. in March had taken place.
Behind the Numbers
America Online gained 755,000 subscribers during the quarter, bringing its total membership to 17.6 million. That compares to a gain of 665,000 subscribers in the year-earlier quarter. The Dulles, Virginia-based company gains the bulk of its revenue from a monthly $21.95 subscription fee.
Still, that's far less than the 1.8 million users added in the previous quarter, which saw a surge in membership as consumers signed up for the service after purchasing low-cost personal computers over the holiday season.
AOL's fiscal fourth quarter is the slowest for the company in gaining new subscribers because it falls over the summer months, when consumers tend to spend less time in front of their computers, analysts said.
America Online signed scores of large advertising deals with companies that span several years which helped boost revenue from electronic commerce and advertising. In February, for example, it said it signed a five-year agreement worth up to $500 million to market credit cards with Bank One Corp.'s First USA unit to AOL subscribers.
Electronic-commerce and advertising revenue now accounts for about 20 percent of the company's quarterly revenue, compared with about 10 percent a year ago. The company has sought to increase its revenue from marketing alliances and electronic commerce since it shifted to a flat-rate subscription in 1996.
What the Experts Say
''This is typically a seasonally a weak period for ISPs,'' said S&P Equity Group analyst Mark Cavallone. ''We're in the summer months when there's less subscriber growth because there's more to do outside.''
America Online's subscriber growth rate was crimped by competition from free Internet providers in Europe, such as Dixons Group Plc's Freeserve, said analysts. Still, the company is running strong despite competition in Europe and from cable- Internet rivals such as Excite At Home Corp.
(AOL) is extremely well managed and has a hell of a lot of brand recognition,'' said First Albany Corp. analyst Jeff Sadler, who rates the stock a ''buy.''
High-speed Internet service such as cable probably will only appeal to a minority of Internet subscribers because it costs at least twice as much as regular phone connections, he said.
''People have to remember it's a premium service,'' Sadler said.
Previous Market Reaction
America Online fell 4.3 percent after it disclosed its fiscal 1998 fourth-quarter earnings amid concern about the online service's discussions with the Securities and Exchange Commission on an accounting issue.
Jul/21/1999 16:22
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