America Online 2nd Quarter Profit Swells
DULLES, Va. (Reuters) - America Online Inc. (NYSE:AOL - news) says its second-quarter earnings were more than double those of the year-earlier quarter, beating Wall Street estimates, powered by a swelling subscriber base and strong growth in advertising and holiday shopping revenues.
The No. 1 Internet services provider, which last week agreed to buy media giant Time Warner Inc. (NYSE:TWX - news) in a deal now valued at $144 billion, Wednesday reported fourth-quarter profits of $224 million, or 9 cents per diluted share, for the quarter ended Dec. 31, excluding merger-related charges and gains.
That number compared with 4 cents per share, or $86 million, a year earlier after adjusting for two intervening stock splits.
AOL's stock price has slumped since it announced the Time Warner deal when shares were trading above 72. In after-hours trading on Instinet, AOL shares were trading evenly at 65 after rising 3-1/4 to close at 64 on the New York Stock Exchange.
``This is a momentous time for America Online, as we're announcing the strongest results in our company's history,' AOL Chairman and Chief Executive Steve Case said. ``During the quarter, we achieved record growth in revenues, advertising and commerce, operating income and subscriber growth.'
In the quarter AOL recognized a one-time charge of $5 million related to merger costs and a charge of $30 million expense related to the acquisition of Gateway.net subscribers, offset by a one-time gain of $111 million on its investment in Web delivery company Sandpiper Networks, which was acquired by Digital Island Inc. (NasdaqNM:ISLD - news) in December.
Including these items, AOL said its earnings rose to $271 million, or 10 cents per share, from $115 million, or 5 cents per share, in the year-earlier quarter.
Analysts were expecting the Dulles, Va.-based company to report a profit of 8 cents per share, according to First Call/Thomson Financial, with whisper numbers ranging between 9 cents and 10 cents per share, according to traders.
``It looks like its a solid quarter all around, from dial-up and advertising and e-commerce and from subscriber growth,' said Youssef Squali, an analyst at ING Barings. ``It was anticipated that this quarter was going to be pretty solid.'
``If whispers are at 10 cents and they made 9 cents, that's not great,' said Adam Weisman, managing director at Soundview Financial Group.
``By the same token, AOL is now in an arbitrage position because of Time Warner, so the stock doesn't necessarily act as if it was in a stand alone security,' he said, referring to how AOL now trades in tandem with its merger partner Time Warner.
Revenues swelled 41 percent to $1.6 billion as shopping, advertising and subscriber revenues all surged.
AOL said subscribers to its flagship Internet service grew to 20.5 million, an increase of 1.8 million from the first quarter ended in September, as the company benefited from a seasonal uptick that normally occurs each winter.
AOL's executives used the platform of the earnings conference call to paint a rosy picture of the future for a combined AOL Time Warner, forecasting cash flow growth rates of 30 percent -- relying on a financial measure favored in analyzing the growth of traditional media companies.
They said the combination presents ``endless' opportunities to bundle products and services, citing as one potential example the offering of AOL membership with a Time magazine subscription.
``Even though AOL subscribers use our service one hour a day, there are still 23 hours left in the day,' Case said. 'And guess what people are doing during those hours, they're watching TV, reading magazines and going to see movies.'
Case repeated that a main goal for the combined AOL Time Warner will be to build on existing AOL services to boost demand for high-speed Web access based on Time Warner's existing RoadRunner Internet cable access service.
``Narrowband access is really the entry point, then we expect to see a number of subscribers will find it worthwhile to pay extra for broadband services,' Case said, contrasting current dial-up access to emerging high-speed services. |
