The news keeps coming....go AOL and forget the naysayers....AOL Earnings Ease Investors' Fears
by Frances Hong
Technology Reporter "The tide has turned, and the stock is going up."
-- Ulric Weil,
Friedman Billings Ramsey & Co.
For the past six months, uncertainty and doubt have been intimidating investors of America Online Inc. {AOL}. But this afternoon's earnings report should help relieve some of those doubts.
After Wednesday's closing bell, AOL said that first quarter earnings were 15 cents a share. Analysts had expected 14 cents a share. On a promising note, advertising and commerce revenues were up sharply, to $350 million from $175 million in the year-ago quarter.
First quarter revenues rose to $1.5 billion, or 47% over last year's first
quarter. AOL set a record for first quarter membership growth, adding
nearly 1.1 million net new members, and at September 30, AOL had a worldwide total of 18.7 million AOL users, 2.2 million CompuServe users, more than over 45 million net registered users of ICQ, and nearly 70 million of AOL Instant Messenger users.
AOL also has an interesting supply problem: It has $2 billion worth of advertising business that is backlogged, or waiting for the opportunity to appear on AOL and be recognized as revenue by the company.
In after-market trading, AOL shares were halted. But at first blush, the earnings news seems good and investors who have weathered volatile times with AOL's stock should be pleased as well.
Doubts had plagued AOL through the summer concerning the company's broadband cable-access abilities, increased pricing, and a potential slowdown in subscriber growth.
AOL Six-Month Performance Chart
AOL One-Month Performance Chart
But all that could soon be just a bad memory. The company's stock had been rebounding during the past couple of weeks, and investors' on-again, off-again love affair with AOL is once again, well, back on.
A number of factors are driving the stock price, observers say.
For instance, over the summer, there was concern that Microsoft Corp. {MSFT} would cut the price of its MSN Internet service to compete with AOL and steal some customers away. Instead, MSN raised prices to match AOL.
"When MSN raised its price, it kicked off AOL's surge," says Ulric Weil of Friedman Billings Ramsey & Co. "That took away the fear of some real price competition, but with Microsoft in litigation battling an antitrust suit, that was an unsupportable thesis."
In addition, the release of AOL 5.0 and its new instant messenger version is giving the company a higher profile, says Paul Merenbloom of Prudential Securities.
"They are building a larger syndicate with AOL instant messenger players, and there's more to come," Merenbloom says. He has a "strong buy" rating on AOL with a 12-month price target of $212, which is above the stock's 52-week high of $175.50.
|
