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Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: SJSharky who wrote (7611)	2/11/1998 2:25:00 PM
From: The Duke	Read Replies (2) \| Respond to of 13594

a little more info NEW YORK (Dow Jones)--Although fiscal second-quarter earnings at America Online Inc. (AOL) beat Wall Street expectations, analysts warned that a network cost benefit the online service provider recorded in the quarter may be hiding the full impact of a drop in gross margins. As reported, America Online posted net income of $20.8 million, or 17 cents a diluted share, compared with a loss of $129.1 million, or $1.37 a diluted share, during the year-ago period. Revenue rose to $592 million from $409.4 million in 1996. Earnings per share for the latest quarter were a penny above consensus expectations. But Lauren Rich Fine, an analyst at Merrill Lynch & Co., noted that results may have been helped by a $17 million network cost accrual benefit. The analyst wasn't immediately available for comment. She did keep her ratings for the on-line service at a short-term accumulate and long-term buy. The "catch-up" benefit apparently offset network costs from prior quarters, Nesbitt Burns Securities Inc. analyst Abhishek S. Gami explained. He said that AOL records these expenses using an estimate of their actual cost, and then makes an adjustment when the figures come in. In a research note, Fine said the benefit may have "masked (the) full decline" of gross margins, if it was used to offset cost of revenues. Gross margins, Fine said, fell to 34.8% from 38.1% a year ago and 37.3% in the first quarter, mainly due to subscriber growth and increased usage. Fine said gross margins before the benefit may have been as low as 32%, which to her suggests that the $2 hike in monthly charges AOL recently announced was more necessary than the company has let on. Gami said the benefit "probably did mask" lower gross margins. Future network costs should be closer to company projections, he added, increasing the likelihood of reduced margins without the extra help. Commenting on concerns that have come up previously about AOL's accounting methods, Gami admitted "that AOL has run into questionable issues in the past about how they account for things," and added that he is curious to see how the company's books will treat its acquisition of CompuServe. But Gami said it is also important to remember AOL is still growing its platform and hasn't yet reached a mature phase, which leads people to cut it a little slack. In composite trading, NYSE-listed AOL was up 4.6%, or 5 1/16, at 114 1/16, on volume of about 2.4 million, compared with average daily volume of nearly 2 million. Company officials weren't immediately available for comment.