America Online Reports FY99 ThirdQuarter Income, Fully Taxed, Excluding Netscape and One-time Events,of $117 Million, or $0.11 Per Share
April 27, 1999 04:19 PM
DULLES, Va.--(BUSINESS WIRE)--April 27, 1999--
Consolidated Net Income Totals $420 Million, or $0.33 per Share
Revenues Rise 66% to Nearly $1.3 Billion
Advertising, Commerce and Other Revenues Increase 94% to $275 Million
AOL Service Adds Record 1.8 Million New Members
America Online, Inc. AOL today announced results for its fiscal third quarter ending March 31, 1999, setting new records for total revenues, advertising and commerce revenues, fully taxed net income before one-time events, and AOL membership growth.
The Company's fully taxed net income totaled $117 million, or $0.11 per diluted share, versus the First Call consensus estimate of $0.09, both of which excluded the results of Netscape Communications Corporation, a merger the Company closed on March 17, and certain one-time events. This compares with $39 million or $0.04 per share on the same basis in last year's corresponding quarter.
America Online reported fiscal 1999 third quarter consolidated net income of $420 million, or $0.33 per diluted share, including Netscape and one-time events, as compared with a net loss of $78 million, or $0.08 per share on the same basis during last year's third quarter. The Company's consolidated income including Netscape, before one-time events and on a fully taxed basis, was $109 million, or $0.09 per diluted share consolidated.
Revenues reached nearly $1.3 billion, representing a 66% increase over the combined AOL and Netscape revenues in last year's March quarter. Advertising, commerce and other revenues reached $275 million, up 94% over last year's third quarter.
America Online recorded two previously disclosed one-time events during the quarter. First, the Company recognized pre-tax gains of $567 million, combining both America Online's and Netscape's sale of shares in Excite, Inc. Second, the Company incurred pre-tax charges of $103 million as a result of expenses associated with the Netscape merger and reorganization.
For the nine-month period ending March 31, 1999, fully taxed net income, excluding one-time events, and total revenues were $249 million, and $3.4 billion respectively, compared with fully taxed net income of $1 million and total revenues of $2.1 billion in the corresponding period of fiscal 1998.
The AOL service set a quarterly record for membership growth, adding 1.8 million net new subscribers to bring the worldwide total to 16.9 million on March 31, 1999. With CompuServe's approximately 2 million members, the Company now has more than 19 million paying members worldwide - including AOL International's more than 3 million non-U.S. members. In addition, America Online has millions of users of its multiple Web-based brands, including more than 32 million registered users of ICQ and 15 million registered users of Netscape Netcenter.
In addition to Netscape, the Company also announced plans during the quarter to acquire MovieFone, the nation's No. 1 movie listing and ticketing service, and to re-brand the service AOL MovieFone on the AOL service and Digital City. The transaction is expected to close in May. On March 31, the Company acquired When.com, a leading provider of Internet calendaring and event services.
A Pivotal Quarter
Steve Case, Chairman and Chief Executive Officer of America Online, said: "This was a pivotal quarter for America Online. Through key acquisitions and partnerships, we substantially broadened and deepened our capabilities, and advanced our leadership in interactive services. Our merger with Netscape provides us with another world-class brand, a fast-growing portal, innovative talent, and cutting-edge technologies. And our partnerships with Bell Atlantic and SBC will enable AOL to provide convenient and affordable high-speed broadband access to millions of Internet users across the country."
Mr. Case added: "We are very pleased with our results this quarter. They demonstrate that we can deliver strong, consistent growth in profits while taking advantage of opportunities to improve our competitive position. With growing financial, technological and operating strength along with the largest audience in cyberspace, we are well positioned to drive the next wave of interactive products and services."
Bob Pittman, America Online's President and Chief Operating Officer, said: "This quarter marked a major advance in America Online's growth as a multiple-brand, multiple-product company. All of our brands - AOL, CompuServe, ICQ and Digital City - showed substantial progress, while being efficiently supported by our shared infrastructure. The all-time high in AOL membership growth and usage continues to demonstrate the power of our brand and the increasing value of our service to consumers around the world, as well as to advertisers and commerce partners. With our prime-time audience now exceeding major cable networks, we were able to achieve record-setting agreements with First USA and eBay."
Mr. Pittman added: "We have moved quickly to integrate Netscape and reorganized the Company to take advantage of new opportunities in this fast-moving environment. With virtually all companies seeking to put their businesses on the Internet, our strategic alliance with Sun will aggressively develop and market a full suite of e-commerce solutions for our partners and other customers. Both MovieFone and When.com will make the online experience of our members and other Internet consumers even more valuable to their everyday lives. We will continue to be opportunistic as our industry consolidates, taking advantage of our focus, efficiency and scale, and we are confident our business momentum will continue."
Key operating metrics from the quarter include:
-- Subscription Revenues: Revenues from subscriptions increased to
$869 million, a 50% rise over the March 1998 quarter.
-- AOL Member Usage: Daily average usage per member reached 55
minutes during the quarter, compared to 46 minutes during last
year's third quarter.
-- Advertising and Commerce Revenues: Revenues from advertising and
commerce climbed to $210 million, increasing 119% over last
year's corresponding quarter. Excluding Netscape, these revenues
rose to $157 million, an increase of 101% over fiscal 1998 third
quarter.
-- Advertising and Commerce Backlog: The consolidated backlog of
advertising and commerce revenues grew to approximately $1.3
billion at the end of this quarter, from $804 million at the end
of the last quarter.
-- Sales and Marketing Expenses: Consolidated sales and marketing
expenses amounted to 17% of revenues, compared with 18% in fiscal
1998's third quarter.
-- Operating Margins: Operating margins before one-time events,
excluding Netscape, improved to 16%, from 9% in last year's third
quarter.
-- EBITDA: EBITDA, before one-time events, improved to $259 million
for the quarter, a more than eight-fold increase over a year ago.
-- Cash Flow from Operations: Cash flow from operations increased to
$611 million, nearly five times more than fiscal 1998's third
quarter, and finished the quarter with $2.7 billion in cash and
cash equivalents.
Interactive Services Group Highlights (AOL, CompuServe, Netscape)
During the quarter, the AOL service took major steps to ensure that its members continue to enjoy the best interactive experience in cyberspace now and into the future.
AOL 4.0 currently accounts for more than 85% of all AOL usage. Underscoring AOL member satisfaction, prime-time simultaneous users of the service this month topped 1.1 million, more than 60% greater than the past year's average and 29% over the December quarter alone.
To ensure AOL members are among the first to benefit from broadband access to the Internet, the Company formed strategic alliances with Bell Atlantic and SBC Communications to use new Digital Subscriber Line (DSL) technology to make available a high-speed upgrade connection to subscribers starting to roll out this summer. By the end of 1999, AOL expects to offer a high-speed broadband upgrade in areas covering nearly 16 million homes in 21 states.
During the quarter, the Company continued to leverage its momentum to expand and initiate commerce partnerships on the AOL service and across America Online's other brands to benefit its members and other Internet users.
The Company's five-year agreement with First USA, valued at up to $500 million, represents the Internet's largest advertising and marketing partnership to date. Under the agreement, First USA became the exclusive marketer of credit card products and services on AOL, CompuServe, AOL.COM and AOL Instant Messenger in the United States and Canada. First USA will also market products and services on Digital City.
AOL also expanded its strategic relationship with eBay, the largest online person-to-person trading community. Through a new $75 million, four-year agreement, eBay will have prominent presence across the Company's brands including AOL, AOL.COM, CompuServe, Netscape Netcenter, ICQ and Digital City. The companies will also create customized and co-branded eBay sites - including comprehensive listings, feedback and ratings, message boards and select content from eBay - for all of these brands. AOL will be entitled to all advertising revenues generated by these sites, and may act as the exclusive third-party advertising sales force for advertising sold on eBay's Web site.
CompuServe's members have been enthusiastic about the service's new software, CompuServe 2000, that provides even faster Internet connections, easier installation and registration, expanded customization options, more powerful e-mail features and simpler navigation.
During the quarter, CompuServe launched the Custom Solutions Division and also reached an exclusive agreement to provide MCI WorldCom with a customized portal including content and programming. In addition, the service announced a partnership with American Lawyer Media, Inc., to create a co-branded CompuServe 2000 and American Lawyer Media Internet service tailored for lawyers and other law professionals.
Netscape Netcenter reached 15 million registered users and launched several new features, including My Netscape, and the expansion of Netscape Netcenter's popular Small Business Channel. During the quarter, Netscape released Communicator 4.51, offering new features including the popular AOL Instant Messenger and Quotes Anywhere, which lets users access stock quotes from anywhere on the Internet via the Netcenter Finance Channel. The Company said that the next version of Netscape Communicator will be rolled out later this year.
Interactive Properties Group Highlights (Digital City, ICQ)
During the quarter, Digital City announced an agreement with MCI WorldCom to become the local content provider on MCI WorldCom Internet. Digital City will offer MCI's Internet subscribers access to 60 interactive city guides that provide local news, community resources, entertainment, classifieds, and commerce opportunities.
The Company said it expects AOL MovieFone to enhance the leadership of Digital City, already the No. 1 local content network from home, by strongly positioning it in the rapidly growing market for online entertainment information and ticketing.
Continuing its record pace of growth, ICQ currently exceeds 32 million registrants. ICQ has marked a nearly 170% increase in registrants since its acquisition in June. The service now supports 13 million active registrants - those who have used it in the last 30 days - with more than 7 million people using ICQ everyday.
During the quarter, ICQ also introduced its latest software, 99a, bringing powerful Web tools right to the desktop, including ICQ iT!, a built-in suite of today's most intuitive search tools, and the new ICQ NOW! content and community area.
AOL International Group Highlights
On March 31, AOL and CompuServe membership outside the U.S. reached 3.2 million. Non-U.S. subscribers to AOL nearly doubled over the past year to more than 2 million members. With more than 2.5 million AOL and CompuServe members, the European joint venture with Bertelsmann AG continues to be the leading pan-European Internet online provider. America Online and the China Internet Corporation now plan to launch their AOL-branded service in Hong Kong during the summer, to be followed by the launch later this year of AOL's first service in Latin America through its joint venture with The Cisneros Group of Companies.
Netscape Enterprise Group Highlights
During the quarter, America Online and Sun Microsystems, Inc. launched the Sun-Netscape Alliance and began to detail their combined e-commerce product strategy for this collaboration. The strategic alliance will provide the first one-stop solution for business partners and other companies competing in today's Net Economy. It will deliver easy-to-deploy, comprehensive enterprise and e-commerce solutions to enable companies to put their businesses online quickly and scale rapidly to meet consumer demand.
The companies also announced that they would develop a unified, next-generation product line on an accelerated timeline, while maintaining support for the current set of products from both companies; ship their first collaborative product by the first quarter of the year 2000; and sell their full suite of products on multiple platforms through a dedicated 500-member sales force.
In addition, the Company formed Netscape Business Solutions to sell America Online and Netscape products and daytime access to America Online business partners and other companies.
About America Online, Inc.
Founded in 1985, America Online, Inc., based in Dulles, Virginia, is the world's leader in interactive services, Web brands, Internet technologies, and e-commerce services. America Online, Inc. operates: two worldwide Internet services, America Online, with more than 17 million members, and CompuServe, with approximately 2 million members; several leading Internet brands including ICQ and Digital City, Inc.; the Netscape Netcenter and AOL.COM portals; and the Netscape Navigator and Communicator browsers. Through its strategic alliance with Sun Microsystems, the Company develops and offers easy-to-deploy, end-to-end e-commerce and enterprise solutions for companies operating in the Net Economy.
The Company's earnings conference call can be heard live on the Internet via AOL.COM at 5:00 p.m. EDT on Tuesday, April 27. To listen to the call, visit aol.com or AOL Keyword: AOL Earnings.
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The forward-looking statements in this release address the following subjects: future financial and operating results; subscriber and usage growth; new markets, products, services, features and content; timing and benefits of acquisitions and other alliances; and availability, benefits, and timing of deployment, of new access and distribution technologies.
The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: inability to further identify, develop and achieve commercial success for new products and services and access and distribution technologies; increased competition and its effects on pricing, spending, third-party relationships, the subscriber base and revenues; inability to establish and maintain relationships with commerce, advertising, marketing, technology and content providers; risk of accepting warrants in certain agreements; risks of new and changing regulation in the U.S. and internationally.
For a detailed discussion of these and other cautionary statements, please refer to the Company's filings with the Securities and Exchange Commission, especially in the Forward-Looking Statements section of the Management's Discussion and Analysis section of the Company's Form 10-K for the fiscal year ended June 30, 1998, the Form 10-Q for the quarter ended December 31, 1998 and in the Risk Factors section of the Company's registration statement on Form S-3 filed in June 1998.
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