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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Diamond Jim who wrote (26718)	7/24/1999 10:17:00 AM
From: Bretsky	Read Replies (1) \| Respond to of 41369

No; I'm saying I bought the stock for an average price of $32. Sorry for the misunderstanding, and best of luck on all your decisions, Bretsky

To: Diamond Jim who wrote (26718)	7/24/1999 10:13:00 PM
From: Marvin Mansky	Respond to of 41369

Part 3: Changes to the Model In light of the stronger than expected growth in advertising revenue, and management's increased visibility of advertising over the next year, we are raising our advertising revenue estimate for fiscal 2000 to $1.5 billion, up from $1.4 billion. Although Enterprise Solution revenue was also stronger than expected, we are not raising this estimate since AOL plans to introduce new products over the course of the year which makes forecasting the demand difficult. However, we believe the Enterprise Solutions business could lead to potential upside over the next year. We are also increasing our gross margin estimate for the year to 46.1%, up from our prior estimate of 44.3% owing primarily to the increased mix of high- margin advertising revenue. Over the course of the year, we expect lower gross margins in the December and March quarters since these are periods of high up take in new subscribers. However, we expect the fourth quarter to end the year strong with a strong sequential increase in gross margin. We are raising our estimate for operating expenses in 2000 by $75 million. The increase is comprised of an increase in Marketing expense of $175 million and decreases in both Product Development and General and Administrative of $44 million and $56 million respectively. The declines in P&D and G&A demonstrate the company's ability to integrate its acquisitions and leverage its infrastructure across its network of brands. We estimate EPS of $0.60 for fiscal 2000, up from our previous estimate of $0.56. AOL Quarterly Summary AOL's fiscal fourth quarter revenues broke down as follows: $943 million for Subscription Service (up 9% Q/Q and 39% Y/Y), $306 million for Advertising, Commerce and Other (up 11% Q/Q and 89% Y/Y), and $128 million for Enterprise Solutions (up 13% Q/Q and 50% Y/Y). Strong revenue growth was driven by stronger than expected results in all categories. Although the new additions of 755,000 were in line with our estimate, they came in at the low end of company guidance due to increased competition from free ISP services in the U.K. (It is important to note however, that revenues from UK subscribers are not consolidated into AOL's results, so this had no bearing on reported revenues.) The weakness abroad was off set by the stronger-than-expected growth in North American, which added a record 686,000 new subscribers, or 31% more than in the year ago quarter. Backlog attributable to advertising and commerce excluding Netscape rose to $1.5 billion, up from $1.3 billion last quarter, which gives AOL a stable revenue source going forward. Gross margin for the quarter was 46.2%, better than our estimate of 44.1%. The 130 basis point improvement over last quarter was due primarily to the increase in high-margin advertising revenue, the ability to operate its many brands on a shared fixed cost infrastructure, which increases network efficiency as traffic grows, and a decrease in member usage. Marketing expenses declined sequentially during the quarter on both an absolute and percentage-of-revenue basis to $214 million (or 15.5% of revenues) from $218 million (or 17.4% of revenues) in the third quarter, but were higher than our estimate of $200 million. Product development expenses of $69 million (5.0% of sales) also decreased on an absolute basis from $80 million in the prior quarter and were lower than our estimate of $78 million. G&A was $111 million (8.1% of sales) slightly below our estimate of $115 million and below the previous quarter level of $113 million. The ability to increase revenue while decreasing every expense line is a testament to the AOL's ability to generate tremendous efficiencies by leveraging its costs over a shared infrastructure. Including net interest income of $30 million and taxes of $100 million, the company reported net income of $156 million or $0.13 per share, beating our estimate $0.10 and First Call consensus estimate of $0.11. Subscriber and Usage Metrics During the fiscal fourth quarter, AOL added 755,000 new subscribers and reached 17.7 million total subscribers, an increase of 4% from the end of last quarter and 41% from the year ago quarter. Although this is down from last quarter's record new adds of 1.8 million, the June quarter is seasonally weak. However, the quarter was negatively affected by increased competitive pressures in the U.K. from free ISPs. This caused the total number of new adds to come in at the low end of the company's range of 750,000 to 850,000. However, North American subscriber additions were up 31% over the year ago quarter, demonstrating strong domestic demand for AOL. We expect that subscriber growth will remain slow in the coming quarter due primarily to seasonality and estimate that the company will add 850,000 AOL brand subscribers in the September quarter. Average minutes of use per member per day decreased sequentially to 52 minutes, versus 55 minutes in the March quarter due primarily to seasonal factors. However, usage is up 19% from 44 minutes per day in the year ago quarter, demonstrating a continued strong secular trend in usage due to the increased stickiness of the service. Finally ICQ continues to report strong numbers with 38 million cumulative users at quarter's end (up 19% sequentially), 15 million of which are active users (i.e. have used the service at least once during the past month) and more than 7 million who use it every day. ICQ may be the strongest international brand on the Internet given that over 60% of its users are from over seas.