America Online Announces FY98 Fourth Quarter Operating Results That
Significantly Exceed Expectations
..........................
Fully-Taxed Fourth Quarter Income, Before Special Charges, Rises More Than Ten-Fold to $57.3
Million or $0.23 Per Share, Exceeding Consensus Estimates of $0.19
DULLES, Va.--(BUSINESS WIRE)--Aug. 4, 1998-- AOL Membership Grows by 665,000 - Best Fourth Quarter in
AOL Membership: The AOL service grew by 665,000 members over the quarter, an 11% increase over fiscal 1997's
fourth quarter new member additions - making it the best fourth quarter and fiscal year in the Company's history. Over
the full year, membership climbed 3.9 million, compared to 2.4 million in 1997. AOL ended fiscal 1998 with a total of
12.5 million members worldwide.
Service Revenues: AOL service revenues climbed to $667.5 million, a 73% increase over last year's fourth quarter,
reflecting higher membership and higher revenue per member.
Other Revenues: Advertising, commerce and other revenues rose to $124.8 million, with the advertising and commerce
fees climbing to $83.1 million, an 87% increase over 1997's corresponding quarter.
Advertising and Commerce Backlog: AOL increased its backlog of advertising and commerce contract revenues from
$180 million at the end of fiscal 1997 to $510.5 million at June 30.
Operating Margins: Operating margins, before special charges, improved to 11.3% for the quarter from 1.6% in 1997's
fourth quarter.
Marketing Spending: Marketing expenses were held to just 12% of revenues, compared to 21% during last year's fourth
quarter.
Operating Cash Flow: The Company generated approximately $55.3 million in operating cash flow during the quarter
and today has cash and cash equivalents in excess of $1 billion, up from $124.3 million at June 30, 1997.
Bob Pittman, President and Chief Operating Officer, stated, ''These results clearly reflect the strength of our core business,
which generates profitable growth while allowing us to make investments in new products and services - our growth vehicles for
the future.
''Our flagship AOL service extended its worldwide lead in the mass market and achieved breakthrough agreements with a
wide range of advertising and commerce partners.
''Leading consumer brands like Kodak and Unilever are increasingly recognizing the attractiveness of AOL's customer base
and we are forging innovative relationships.''
Pittman continued, ''Our targeted brands - CompuServe, AOL.COM, ICQ and Digital City - have added an important new
dimension to our business model, dramatically increasing our global audience and revenue potential.
''AOL's shared, cost-effective infrastructure, scale and expertise position us uniquely to profitably grow these other brands.
We look forward to the launch of a number of exciting new products this Fall and the continuing development of extensions of
AOL to emerging platforms.''
AOL Service Highlights
Over the year, AOL undertook a number of initiatives to improve the member experience and enhance the service's value
proposition. Last month, C/NET awarded AOL its Editors' Choice recommendation as the No. 1 national Internet service
provider for being ''the best deal in town.''
Last week, the final version of AOL's next-generation software, AOL 4.0, became available to members for downloading - the
first step of the broad-scale consumer launch of AOL 4.0 that will culminate with the mailing of easy-to-install CD-ROM's to
millions of members and potential customers.
With its unparalleled array of new products and features that further enhance the service's convenience, ease-of-use and
seamless integration with the Web. During its preview period and now in its launch, AOL 4.0 has generated more than 3 million
downloads.
AOL members averaged 44.2 minutes a day online in the latest quarter, a 16% increase over a year ago, during what is the
seasonally slow period for usage. The current quarter's member usage is continuing to grow. In another measure of AOL's
''ratings,'' simultaneous usage of the service during peak periods grew during the quarter to more than 692,000.
As part of its commitment to provide the most advanced technology available for the best possible member experience, AOL
last month deployed the standard V.90 modem protocol for high-speed 56 Kilobits-per-second (Kbps) access throughout
AOLnet, the world's largest dial-up data network.
The Company added 350,000 modems available to AOL members over the past year, for a total of 800,000, and expects its
network to surpass one million modems during fiscal 1999.
During the quarter, AOL launched the first nationwide field trials of Digital Subscriber Line - xDSL - broadband service. The
Company said that it intends to offer its members this higher-speed option when it becomes easy-to-use and commercially
viable for the mass market.
Advertising & Commerce Agreements Highlights
Over the quarter, the Company increased to approximately 50 its number of partners with multi-year advertising and commerce
agreements valued in excess of $1 million.
In the single largest commitment to the interactive medium made by any packaged goods marketer to date, Unilever, the global
leader in consumer packaged goods, joined AOL in a three-year global interactive marketing agreement earlier this month.
Under the agreement, as many as 100 Unilever brands will benefit from a prominent presence throughout the AOL service.
Unilever brand advertising may also appear on CompuServe. And Unilever will have a global advertising presence on several
of AOL's international services for specific packaged goods categories.
Over the past several weeks, the Company announced two-year pacts with four leading online brokerages for a combined total
of $100 million.
In the Fall, DLJdirect(TM), E*TRADE, Waterhouse Securities and Ameritrade will become the premier brokerages in AOL's
new Brokerage and Mutual Fund Centers in the AOL Personal Finance Channel -- the most frequently visited channel on AOL
and cyberspace's most popular personal finance destination.
AOL also concluded an alliance with photo giant Eastman Kodak Company [NYSE:EK - news] to offer members an exclusive
new online service -- ''You've Got Pictures!''(SM) -- that will revolutionize how people share and store their favorite pictures
and add a compelling new dimension to both online communications and photography. The service is scheduled for launch this
Fall.
In addition, AOL entered into key marketing alliances with a series of major personal computer manufacturers. The new
multi-year agreements make AOL the featured Internet service on a range of computers made by the Compaq Computer
Corp. [NYSE:CPQ - news], Packard Bell NEC Inc., and IBM.
Consumers will be able to access the pre-installed AOL software by simply clicking on the prominently displayed AOL icon
during the computer's initial setup process.
The Company said these pacts underscore the power of the AOL brand and the increasing importance that consumers put on
the Internet experience in buying personal computers.
AOL International Highlights
AOL International enjoyed strong growth during the quarter, surpassing 2.5 million combined AOL and CompuServe
members. In France, America Online, Bertelsmann, Canal+ and Cegetel signed agreements to establish a new strategic alliance
to serve a combined 285,000 French members.
AOL International built its advertising and commerce revenues with the international component of the Unilever agreement, the
first-ever global interactive marketing pact.
In addition, AOL Europe, the joint venture between America Online and Bertelsmann, reached an agreement with N2K Inc.
[Nasdaq:NTKI - news], the leading online music entertainment company, to make N2K's Music Boulevard the exclusive music
partner for AOL's European services.
And AOL and Excite Inc. [Nasdaq:XCIT - news] announced an agreement to launch localized versions of the AOL NetFind
product, powered by Excite's search and navigation technology, on the AOL Japan and AOL Canada services.
Highlights from CompuServe, AOL.COM, Digital City, and ICQ
In June, CompuServe launched its new client, CompuServe 4.0, and CompuServe Instant Messenger in the United States.
Together these new products deliver a faster, more convenient and more productive Internet experience for today's busy
adults.
Early next year, CompuServe plans to introduce its 5.0 software, based on AOL's state-of-the-art technology platform while
preserving the distinctive CompuServe look and feel.
As part of its agreement with AOL, Packard Bell NEC also will be promoting CompuServe within the initial setup process on
its personal computers.
AOL continues to expand its portal strategy, through the continued development of AOL.COM as well as the expansion and
repositioning of ICQ. Last month, the Company introduced the preview version of the redesigned AOL.COM, the No. 1 Web
site among home users.
With a fresh look and new Web content and product offerings, it is becoming a premier destination site for both AOL members
and the Internet audience at large. AOL.COM will continue to evolve over the coming months before the launch of the final
version sometime later this year.
Since its acquisition, ICQ -- the fastest-growing instant communications service on the Internet -- has continued its phenomenal
growth, totaling 13.9 million registered users including 6.8 million active users recording 263 million hours of usage per month
by the end of the quarter.
Last month, ICQ was named the overall winner of PC Magazine's Shareware Awards, as well as of the e-mail, news readers,
and chat awards.
While operating ICQ as a separate brand, the Company said it will continue to develop the ICQ instant communications and
chat technology to improve the service and establish its revenue-generating capabilities as a major Web portal built around an
active and rapidly growing community.
During the quarter, AOL Studios' Digital City, the No. 1 branded local content and community guide on the Internet and the
AOL service, expanded into 12 new cities -- bringing to 50 the number of markets it now serves.
Digital City was also launched on CompuServe and on AOL.COM. In addition, AOL launched its next-generation Digital City
Los Angeles, an interactive online city guide with enhanced features and functionality and availability on the World Wide Web.
Digital City and Netscape Communications Corp. [Nasdaq:NSCP - news] announced a two-year strategic agreement
yesterday to make Digital City the exclusive local content provider to the co- branded Local Channel of Netscape's Netcenter
2.0.
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