HITTING ON ALL CYLINDERS>>>>>GREAT NEWS.....America Online Says It's On Track to Meet Revenue and Earnings
Estimates
By Aimee Picchi
AOL Says It's on Track to Meet Revenue, EPS Estimates (Update3)
(Updates with U.S. composite closing price for AOL.)
Dulles, Virginia, Aug. 11 (Bloomberg) -- America Online
Inc., the largest Internet service provider, told investors it's
on track to meet analysts' estimates for revenue, subscriber
growth and earnings for the current quarter and fiscal full year.
AOL President Bob Pittman said the company's business has
never been better, according to investors on a conference call
today hosted by Morgan Stanley Dean Witter analyst Mary Meeker.
News reporters weren't allowed to listen to the call.
America Online's shares have tumbled about 45 percent since
April, when it closed at a high of 167 1/2, on concern that
competing high-speed cable-Internet technology and rivals such as
Microsoft's MSN service could slow AOL's growth. That doesn't
seem to be the case, investors on the call said.
''It's a company that's hitting on all cylinders right
now,'' said Ned Brines, an analyst at Roger Engemann &
Associates, which owned 5.3 million shares of AOL as of June. The
call ''reiterated the bullishness that exists in the business.''
AOL also said that its plan to build CompuServe's subscriber
base is going very well, said Brines, who expects AOL to report
revenue of about $1.5 billion for its current quarter. AOL has
been offering $400 rebates for personal computers to people who
agree to use CompuServe for three years.
''You'll see good growth at CompuServe,'' said Brines.
CompuServe, with about 2 million subscribers, hasn't grown much
since AOL bought it more than a year ago.
''America Online executives reaffirmed that the business has
never been stronger,'' said AOL spokesman Jim Whitney after the
call.
AOL shares rose 6 3/16, or 7.3 percent, to 91 3/16.
Seasonal Trends
AOL shares have dropped 21 percent since July 21, when
reported its fiscal fourth-quarter earnings, on concern about
slowing subscriber growth and competition from Microsoft Corp.
and others.
Those concerns, which could take years to resolve, will
probably be pushed to the background soon as investors start
focusing on the Christmas holiday season. That's the peak time
for Internet companies to sign up new customers and when
consumers spend billions on buying gifts online.
''Investors will start buying back in the late fall when we
see a busy e-commerce fourth quarter,'' said Mark Cavallone, an
analyst at Standard & Poor's Equity Group who rates AOL shares
''accumulate.''
The summer is typically a slower season for U.S. Internet
companies because people spend less time in front of their
computers and buy fewer items online.
Investment into AOL shares have been little changed in the
last three weeks even as the stock has tumbled, according to
Bloomberg's money flow analysis. That indicates that some
investors were still willing to buy the stock even though they
had to pay more than the prevailing market price.
Between April 6 and July 21, trades in AOL completed at
higher prices exceeded those at lower prices by $4.5 billion,
according to Bloomberg analytics. Between April 6 and Aug. 10,
trades in AOL at higher prices exceeded those at lower prices by
the same amount, $4.5 billion.
Internet Correction
America Online's drop isn't a singular event among Internet
stocks, which have tumbled since April on concern about higher
Internet rates and widening losses. The Bloomberg Internet Index
has lost 40 percent of its value since April 6. Nevertheless, AOL
is one of the few Internet companies making a profit.
''AOL did $1.8 billion in e-commerce in the first quarter.
That's mind blowing,'' said Abhishek Gami, an analyst at William
Blair who rates AOL shares a long-term ''buy.'' 'A single company
doing that ought to garner more attention.''
AOL is facing competition from high-speed cable-Internet
service Excite At Home Corp., which had about 620,000 subscribers
at the end of June. AOL is betting that a rival high-speed
technology using existing telephone lines, called DSL, will be
more popular than cable-modem access.
Still, it could be years before either service becomes
popular in the U.S., analysts said. Excite At Home's subscriber
base is about 3 percent of AOL's more than 19 million member
base.
AOL's shares tumbled last week on speculation that Microsoft
will trim or eliminate its Internet access fees in a move that
could cut AOL's revenue.
''It's no different than ever before,'' said Gami. ''Go back
a few years: They were facing MSN, AT&T was offering free
Internet access for a year, pricing was a concern. Today, we have
a new set of competitors and old ones -- MSN is coming back
again. We don't talk about AT&T anymore, but talk about Excite At
Home and cable.''
AOL should be able to navigate its way through those
competitive issues, too, Gami said.
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