America Online, Inc. Reports FY98 Third Quarter Net Income, Before Special Charges,
of $39.0 Million or $0.16 Per Share
Business Wire - May 06, 1998 16:05
DULLES, Va.--(BUSINESS WIRE)--May 6, 1998--
Revenues Up 54% to $693.6 Million
Advertising, Commerce and Other Revenues Up 72% to a Record $117.9 Million
America Online, Inc. (NYSE: AOL) today reported net income, before special charges and on a fully taxed basis, of $39.0
million, or $0.16 per share on a diluted basis, for its fiscal third quarter ended March 31, 1998.
These results compare to a net loss of $4.7 million, or $0.02 loss per share, in fiscal 1997's corresponding quarter.
Revenues for the latest quarter increased 54% over the same quarter last year to a record $693.6 million.
The quarter's pre-tax income, before special charges, rose to $63.4 million, or 9.1% of revenues, as compared with a loss
of $4.7 million in the third quarter of fiscal 1997.
Reported net income for the quarter - including the special charges and with no tax provision - totaled $18.6 million, or
$0.08 per diluted share. The Company's tax provision was offset by the utilization of its net operating loss carryforwards.
As of March 31, 1998, the Company's net operating loss carryforwards and other deferred tax benefits totaled $827
million.
During this quarter, the Company had two special charges which had been previously announced. In connection with the
restructuring of AOL Studios, the Company recorded a charge of $35.1 million. In addition, the Company took a $9.7
million charge for acquired research and development related to the January acquisition of Personal Library Software
(PLS), a leading developer of information indexing and search technologies.
The Company's cash position improved by $405.9 million during the quarter, increasing to $924.1 million at March 31,
1998 from $518.2 million at December 31, 1997. This improvement was principally due to the generation of $214.3 million
in cash from operations and $207.4 million in cash received pursuant to the January CompuServe/ANS Communications,
Inc. transaction.
"We are extremely pleased with AOL's operating results, which show strong continuing momentum across the board,"
said Steve Case, Chairman and Chief Executive Officer of America Online. "We built membership steadily and efficiently
throughout the quarter, both in the U.S. and internationally, and made significant gains in advertising and electronic
commerce. We substantially improved our cash position. And we continued to tightly manage costs.
"During the quarter, we moved quickly to integrate CompuServe and put in place a new organization to support our AOL,
CompuServe and AOL Studios product groups," Case added.
"To enhance our members' online experience, we are continuing to build and upgrade our network infrastructure, expand
customer service, and roll out new products like our next-generation AOL 4.0 software. And AOL continues to take an
active role in the development of emerging technologies and markets, as well as in public policy issues affecting the
interactive medium."
AOL's flagship service experienced a strong quarterly increase of 1,148,000 new members for a total of 11,870,000
worldwide as of March 31, 1998. On April 16, the Company announced that its membership had topped 12 million
worldwide. In addition, CompuServe had a worldwide total of 2,175,000 members in good standing as of March 31, 1998,
excluding members of its SpryNet Internet service.
The Company's marketing expenses during the fiscal 1998 March quarter were reduced to $84.2 million, or 12.1% of
revenues, from the prior year period's $92.8 million or 20.6% of revenues.
Advertising & Commerce Momentum Continues
This quarter's advertising, commerce and other revenues amounted to $117.9 million, compared to $68.6 million in last
year's corresponding quarter. AOL's backlog of advertising and commerce contract revenues increased by $107 million
from the December quarter to reach $427 million.
Bob Pittman, President and Chief Operating Officer of America Online, said: "The AOL experience increasingly is
becoming integral to our member's everyday lives. For advertisers, marketers and content providers, that means the
AOL brand is their best choice for online partnerships. And we are increasingly leveraging our growing subscriber base
to deliver special benefits for our members."
Pittman added: "Our new commerce and content partnerships with Bloomberg, Sage, Intuit, TheStreet.com, and
Standard & Poor's Personal Wealth have made AOL's Personal Finance Channel - already cyberspace's No. 1 financial
site - even more valuable to our members."
Over the past several months, a series of new or expanded content and commerce agreements have helped AOL enrich
its members' online experience. For example, AOL's financial offerings have benefited from:
-- A relationship with Standard & Poor's Personal Wealth, the newly launched premium Web investment management
service, to be featured in the AOL Personal Finance Channel;
-- A multi-year agreement with Bloomberg L.P., the global news, information and media company, including an anchor
tenancy in AOL's Business News Center;
-- An expanded multi-year partnership with Sage, the world's largest online mutual fund forum, to be the premier
provider of information and analysis on the mutual fund industry;
-- A relationship with TheStreet.com, a leading investment news site, including an anchor tenancy in AOL's Personal
Finance Channel; and,
-- A multi-year partnership with Intuit, Inc., the world leader in financial software and Web-based services, to provide
content for a variety of AOL financial areas and the primary source of original programming for the Personal Finance
Web Channel on AOL.COM.
Also during this past quarter, AOL announced long-term, multi- million dollar commerce agreements with Cyberian
Outpost Inc., Software.net, and Provident American Corporation. Last month, the Company reached a $14 million,
multi-year agreement with REALTOR.COM, which is the exclusive provider of existing home listings to AOL's newly
launched Online Real Estate Center.
Additionally, AOL has entered into content partnerships with E! Online, Infonautics' Electric Library service, and the
magazine Teen People in AOL's new AOL Teen Channel. AOL also extended its relationship with Hachette Filipacchi to
continue to provide such popular magazines as George, Mirabella, Woman's Day, and Popular Photography to our
members.
Using its infrastructure to provide services to corporate customers, the Company announced that AOL Enterprise has
reached agreements with Lotus Development Corporation to provide Internet access in its Lotus Notes collaboration
software, and with Oracle Corporation to provide Oracle's mobile workforce with Internet access and services.
Members Continue to Make AOL Integral to Everyday Lives
AOL member usage grew during the last quarter, with daily usage averaging 46 minutes per member, up from fiscal 1998
second quarter's 41 minutes. Simultaneous usage of the service during peak periods grew to more than 675,000 during
the quarter.
AOL's increased audience reach is reflected in the fact that at the end of the quarter, the service was handling daily:
-- 28 million e-mails to 90 million recipients;
-- 200 million instant messages;
-- 75 million stock quotes;
-- More than 800 million Web hits; and
-- More than 8.3 million hours in member usage.
As part of its continuing efforts to progressively improve the member experience, AOL continued to roll out its
next-generation 4.0 software - now being used by 1.2 million members in preview. AOL also continued to expand its
network to meet demand, making available over 25,000 more modems in each month during the quarter.
At the end of the quarter, the Company had approximately 775,000 modems available to members. In addition, AOL
announced in April an agreement to license Inktomi's Traffic Server(tm) network cache software. AOL plans to use this
software as part of its Web service. Last month, AOL announced that it will become the first national Internet online
service provider to begin conducting field trials for high-speed access to its service using Digital Subscriber Line (xDSL)
broadband services.
Finally, the AOL Buddy List service will become part of the Smithsonian Institution's Permanent Research Collection on
Information Technology Innovation at the National Museum of American History.
With approximately 25 million accounts among both AOL members and Web users, the AOL Buddy List enables users
worldwide to see when friends, family and colleagues are online and communicate with them in real time using the
Instant Message(tm) feature.
Progress in Integrating CompuServe
During the quarter, America Online moved quickly to integrate CompuServe's U.S. service, stabilize its membership
base, and improve profitability. The plan for the service includes fast- track development of CompuServe 4.0, an
HTML-based client to be launched this summer, which will make it easier for the service's busy members to quickly find
what they are looking for.
CompuServe also announced that it has reached a multi-million- dollar agreement with Tel-Save to offer its
competitively priced long-distance telephone service to CompuServe members. In addition, CompuServe announced
this week that it was expanding its relationship with Florists' Transworld Delivery (FTD).
In early April, U.S. CompuServe launched a new marketing and advertising campaign and unveiled its new logo. This
new, nationwide print and broadcast advertising campaign - the first campaign that the U.S. service has initiated in
almost two years - is designed to position CompuServe as the choice for sophisticated, time-constrained consumers
who are "serious about Internet Online."
Its goal is to re-introduce the public to one of the most respected and best recognized brands in cyberspace, raise general
consumer awareness of the brand and build on CompuServe's strong brand equity.
AOL International Capitalizing on Reaching Critical Mass
During this past quarter, AOL International continued to build the Company's worldwide position. In Europe, the
America Online- Bertelsmann AG joint ventures operate both AOL and CompuServe - making it the leading
pan-European Internet online service provider with more than 2 million combined members.
Last month, the AOL-Bertelsmann joint venture reached an agreement with N2K Inc., the leading online music
entertainment company, to make N2K's Music Boulevard the exclusive music retailer for the AOL Europe Internet
online service as well as Web-based services.
AOL and the Hong Kong-based China Internet Corporation Limited (CIC), announced plans to launch an
AOL-branded service for Hong Kong consumers within the next year. The AOL Hong Kong service will be built on the
AOL U.S. service and will provide original local content in both Chinese and English, with most local content being
developed or provided by CIC.
AOL Studios Launches Digital City New York and 2.0 Upgrade
During the quarter, AOL Studios launched Digital City New York, marking the first time that Digital City introduced an
interactive online city on both AOL and the World Wide Web.
The newest of 38 Digital City sites nationwide, Digital City NY sets the stage for the national roll-out of Digital City 2.0 -
the next generation of cross-platform Digital City sites - over the coming year and expands AOL Studios' position as the
leader in interactive content both nationally and locally.
With its advertising and commerce revenues doubling from the December quarter, AOL's Digital City also is ranked as
the Internet online's No. 1 local city resource, according to Media Metrix's March research report.
In addition, the network increased its reach in March by 500,000 (15%) to a total of 2.9 million people monthly, or more
users than the next three local content networks combined.
America Online, Inc., (NYSE: AOL) based in Dulles, Va., is the world's leader in branded interactive services and
content. The Company operates two worldwide Internet online services - AOL, with more than 12 million members, and
CompuServe, with more than 2 million members - as well as AOL Studios, the world's leading creator of original
interactive content.
Other branded Internet services include AOL.COM, the world's most accessed Web site from home; AOL Instant
Messenger, allowing instant communication with all Internet users; and AOL NetFind, AOL's comprehensive guide to
the Internet.
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
Such 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 operating results; subscriber
growth and retention; increasing advertising and electronic commerce revenues; sustaining earnings' growth and
meeting profit targets; development and success of multiple brands in the U.S. and internationally; AOL 4.0 and other
new products (such as CompuServe 4.0 and Digital City 2.0) and services (such as in Hong Kong); marketing, advertising
and customer service spending; expansion and utilization of network capacity; identification, testing and implementation
of new access and distribution technologies; the Company's ability to shape public policy in, for example,
telecommunications, privacy and tax areas.
The following factors, among others, could cause actual results to differ materially from those described in the
forward-looking statements: increased competition and its effects on pricing, third-party relationships, the subscriber
base and revenues; inability to provide adequate network capacity; heavy reliance on three network service providers;
slowing or reversing subscriber and/or revenue growth as a result of a recent price increase, requiring the Company to
increase marketing spending and causing decreased margins; inability to establish and maintain relationships with
electronic commerce, advertising, marketing, technology and content providers; and the inability to identify, develop and
achieve commercial success for new access and distribution technologies; risks of regulation in the U.S. and
internationally in areas of telecommunications, access charges, privacy, encryption, content, consumer protection,
intellectual property and taxation; inability to manage growth; inability to successfully acquire and integrate new
companies.
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, 1997 and in the
subsequently filed Forms 10-Q, and in the Risk Factors section of the Company's registration statement on Form S-3
filed in February 1998. |
