America Online Reports a Four-FoldIncrease in Fully Taxed Earnings Per Share to 17 Cents On a 62% Gainin Revenues for FY99 Second Quarter
January 27, 1999 04:02 PM
DULLES, Va.--(BUSINESS WIRE)--Jan. 27, 1999--
Advertising, Commerce and Other Revenues Rise 66% to Record $181 Million
Record 1.6 Million New Members Join Service in December Quarter
America Online, Inc. AOL today announced results for its fiscal second quarter of 1999, ending December 31, 1998, setting new records in total revenues, advertising, commerce and other revenues, net income and membership growth.
The Company's net income totaled $88 million, or $0.17 per diluted share, on a fully taxed basis for the 1999 second quarter, a 340% increase over last year's second quarter fully taxed net income of $20 million, or $0.04 per diluted share.
Because the Company's tax provision continues to be substantially offset by utilization of its net operating loss carryforward, reported net income for the quarter totaled $121 million, or $0.22 per share on a diluted basis, as compared with $33 million, or $0.06 per share on the same basis in last year's corresponding quarter.
Total revenues increased by 62% over the same quarter last year to $960 million. Advertising, commerce and other revenues reached $181 million, up 66% over last year's second quarter.
For the six-month period ending December 31, 1998, fully taxed net income and total revenues were $157 million, and $1.8 billion respectively, compared to fully taxed net income of $38 million and total revenues of $1.1 billion in the corresponding period of fiscal 1998.
AOL membership grew at a record pace in the quarter with 1.6 million net new members joining the service and bringing the total worldwide membership of the world's leading Internet online service to 15.1 million on December 31, 1998. With CompuServe's approximately 2 million members, the Company has a total of more than 17 million paying members worldwide, as well as millions of users of its various Web brands.
Steve Case, Chairman and Chief Executive Officer of America Online, said: "With this quarter's record results, we continued to build excellent momentum throughout our operations and across our brands. In 1998, the Internet truly came of age and became even more integral to people's everyday lives. As the industry leader, America Online is better positioned than ever to continue delivering strong profit growth on a consistent, predictable basis."
Mr. Case added: "Electronic commerce is changing forever the way businesses sell and consumers buy goods and services. We're excited about the opportunities presented by our pending combination with Netscape as well as our alliance with Sun Microsystems to drive the growth of this new medium and serve new customers and markets in valuable and innovative ways."
Bob Pittman, President and Chief Operating Officer, said: "The record increase in its membership base highlights the power of the AOL brand, as well as the growing appeal of our service's convenience and ease-of-use to mainstream consumers. Our CompuServe, ICQ and Digital City brands - supported by the AOL service infrastructure - made significant progress this quarter and they are poised for more in the coming months. With advertising and commerce revenues more than doubling, mainstream marketers increasingly see the superior value of reaching cyberspace's biggest audience through our brands."
Mr. Pittman added: "As we work to ensure a smooth transition of Netscape into our family of brands, we are becoming even more enthusiastic about the potential of this acquisition. When we close the transaction, we'll be ready to move quickly to build on the initial success of Netcenter and market turnkey e-commerce solutions to businesses seeking to join or increase their participation in the Net Economy."
The Company said that its pending acquisition of Netscape Communications Corporation is expected to close in early spring.
Key operating metrics from the quarter include:
-- Online Service Revenues: Revenues from subscriptions climbed to
$779 million, an increase of 61% over the second quarter of
fiscal 1998.
-- Advertising and Electronic Commerce Revenues: Revenues from
advertising and commerce climbed to $126 million, an increase of
133% over the $54 million in last year's second quarter and 22%
above the $103 million recorded during the first quarter.
-- Advertising and Electronic Commerce Backlog: The Company grew its
backlog of advertising and electronic commerce revenues from $598
million on September 30, 1998 to $729 million on December 31,
1998.
-- Cash Flow from Operations: The Company's cash flow from
operations was $208 million, a 193% increase over last year's
second quarter. On December 31, 1998, it had cash and cash
equivalents of $1.5 billion, up from $521 million on December 31,
1997.
-- Operating Margins: Operating margins improved to 13.6% from 5.4%
in the corresponding quarter last year and 12.9% in the September
quarter.
-- Marketing Expenses: Marketing expenses amounted to 14% of
revenues, compared with 16% in the second quarter of fiscal 1998.
-- AOL Member Usage: Members increased their average daily usage on
the AOL service to 48 minutes during the quarter, up from 41
minutes in the corresponding quarter last year.
AOL Service Highlights
During the quarter, the service's AOL 4.0 software continued to generate an enthusiastic response from members. It now accounts for more than 70% of all usage -- the fastest adoption rate of any software in AOL history. AOL 4.0 for Macintosh became available for download earlier this month and CD-ROMs will be mailed to AOL members who use Apple computers in the coming weeks.
Usage of the service continues to grow in the current quarter, last week passing one million simultaneous users. By comparison, the service had just 190,000 simultaneous users when unlimited use pricing became effective on December 1, 1996.
In a significant advance in the development of broadband availability, the Company formed a strategic alliance with Bell Atlantic earlier this month to offer Digital Subscriber Line (DSL) access to the AOL service. Bell Atlantic, serving one-quarter of the country, plans to make DSL available in areas covering 7.5 million homes by the end of 1999, a number that Bell Atlantic expects to nearly double to more than 14 million by the end of the year 2000.
Under the agreement, America Online will begin this summer to offer Bell Atlantic's Infospeed DSL access as an upgrade for AOL members in Bell Atlantic's service area, as the technology becomes available in major markets. America Online will announce its DSL pricing plan when the roll-out begins this summer, and the DSL upgrade is expected to cost AOL members less than $20 extra per month.
During the 1998 holiday shopping season, AOL members spent an estimated $1.2 billion with online retailers available through the service. An estimated one million-plus members shopped online for the first time ever this holiday season. The Company began introducing a new shopping convenience tool, AOL's Quick Checkout, which lets shoppers store key purchase information securely online, including 10 credit card numbers and up to 50 shipping addresses.
To provide AOL members with a customized online shopping experience, the Company last quarter acquired PersonaLogic, Inc., a leader in personalized, interactive consumer buying guides. These guides are convenient and easy-to-use tools that help AOL members make informed decisions by simply describing their preferences on a wide variety of products and services that meet their individual tastes.
Since September 30, 1998, the Company has reached major new or expanded advertising and commerce agreements with Bell Atlantic and GTE Directories Corporation, PlanetRx, Inc., Digital Chef, E-Stamp, Stamps.com, and Tel-Save.com, among others.
Building on the successful AOL-CBS relationship to further enhance the member experience, CBS NEWS earlier this month became the exclusive provider of broadcast news on the AOL and CompuServe services and the premier broadcast news provider on AOL's Web site, AOL.COM. This alliance guarantees CBS NEWS an extensive presence across AOL brands with AOL receiving major on-air promotion on CBS NEWS programming.
In addition, the Company and Dell Computer Corporation announced a multi-year agreement to feature AOL on Dell consumer computers sold in the United States and Canada. Underscoring the appeal of the AOL brand and the increasing importance that consumers put on the Internet experience in buying personal computers, this is the seventh in a series of key marketing alliances with major personal computer manufacturers, including: Compaq Computer Corporation, Packard Bell NEC, Inc., IBM, Sony, HP, and Acer America.
AOL International Highlights
Earlier this month, AOL membership outside of the U.S. passed 2 million, nearly doubling over the last year. Including CompuServe's non-U.S. members, AOL International now has a total of over 3 million members.
After launching its latest service, AOL in Australia -- a joint venture with Bertelsmann AG -- in October, AOL International in December announced its joint venture with the Cisneros Group -- one of Latin America's premier media, entertainment and telecommunications organizations -- to develop and market AOL services for Latin America. The joint venture first will target Brazil, Mexico and Argentina. It also will operate the CompuServe brand in Latin America.
During the quarter, AOL's joint venture with Bertelsmann in Europe announced a multi-year $13 million agreement to make BOL, Ltd. the exclusive bookseller on the AOL and CompuServe services in Europe. This represents one of the largest Internet commerce and advertising deals in Europe to date and reflects the rapid growth of the European interactive marketplace.
Highlights from CompuServe, ICQ, AOL.COM, and Digital City
The Company's interactive brands -- CompuServe, ICQ, AOL.COM, and Digital City -- extended their combined audience reach during the quarter.
CompuServe re-launched its Shopping Channel, focusing on serving its business-oriented member base by providing a full-service shopping experience. With over 100 retailers, the CompuServe Shopping area saw traffic increase 300% during the holiday season. The service has also realized a nearly 40% increase in daily member usage since July, a key metric for CompuServe in particular because so many members are still on hourly plans.
CompuServe recently took another step in the development of its professional market solutions through a strategic partnership with WebMD, Inc., a full-service Internet healthcare site. This partnership is designed to deliver best-of-breed dial-up access, content and services to physicians and other healthcare professionals, and trusted healthcare information and other services to CompuServe members.
In the next several weeks, CompuServe will introduce CompuServe 2000, its new software that will share the AOL 4.0 platform at significant network cost-savings and provide members with an improved e-mail system, cleaner and simpler look, Microsoft Internet Explorer 4.01, five screen names per account, Parental Controls and V.90 access.
During the quarter, the Company continued to make significant progress in building ICQ into a major desktop communications portal. ICQ has rolled out its new client in beta to approximately one million users. This client provides users with an advanced search function, enhanced capability to communicate with friends and family via instant messages and real-time chats, as well as the ability to meet new people sharing similar interests, among other features.
Since AOL's acquisition of ICQ just six months ago, the total number of ICQ registrants has nearly doubled to more than 25 million. ICQ currently supports 11 million active registrants -- those who have used the service in the last 30 days -- marking a nearly 70% increase since June. Importantly, more than 5.2 million people use the service everyday and, currently, more than 75,000 people are registering daily compared to 50,000 in June.
The Company extended its Shopping Channel to AOL.COM, the No. 1 consumer Web site, providing AOL's shopping partners with unique access to cyberspace's largest audience of consumers. Extending the reach of AOL.COM into the business/daytime market, the Company and Lotus Development Corp. will deliver a co-branded suite of offerings to users of Lotus Notes R5 and Lotus Sametime that include AOL.COM's Web searching capability and My News customized news service. In addition, users of Lotus Sametime Connect will be able to communicate with the millions of AOL Instant Messenger users worldwide.
Last October, Digital City, the No. 1-branded local content network and community guide, launched on three new platforms including AOL.COM, CompuServe and Netscape Netcenter. Digital City announced a new strategic agreement with The Weather Channel for content for all of Digital City local markets, for on-air television promotions of Digital City on The Weather Channel cable network, and featuring Digital City as the local content provider for weather.com's 6 million monthly users.
About America Online, Inc.
America Online, Inc., based in Dulles, Virginia, is the world's leader in branded interactive services and content. America Online, Inc. operates two worldwide Internet services: America Online, with more than 15 million members; and CompuServe, with approximately 2 million members. America Online, Inc. also operates AOL Studios, a leading builder of Internet brands for new market segments. Other branded Internet services operated by America Online, Inc. include AOL.COM, the world's most accessed Web site from home; Digital City, Inc., the No. 1 branded local content network and community guide on AOL and the Internet; AOL NetFind, AOL's comprehensive guide to the Internet; AOL Instant Messenger, an instant messaging tool available on both AOL and the Internet; and ICQ, an instant communication and chat technology on the Internet.
The Company's earnings conference call can be heard live on the Internet via Broadcast.com at 5:00 p.m. EST on Wednesday, January 27. To listen to the call via the Internet, visit the Broadcast.com Web site at www.broadcast.com, download the appropriate software, and navigate to the AOL listing.
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These 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 financial and operating results; timing and benefits of acquisitions and other alliances; new products, services, content and features; and timing of deployment, availability, pricing and benefits of new access and distribution technologies.
The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: failure of satisfaction of certain closing conditions, including customary regulatory approvals and approval by Netscape's shareholders; inability to further identify, develop and achieve commercial success for new products and services and access and distribution technologies; increased competition and its effects on pricing, spending, third-party relationships, the subscriber base and revenues; inability to provide adequate network capacity; fixed-cost, minimum-commitment nature of network; reliance on network service providers; inability to establish and maintain relationships with commerce, advertising, marketing, technology and content providers; risk of accepting warrants in certain agreements; risks of new and changing regulation in the U.S. and internationally.
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, 1998, the Form 10-Q for the quarter ended September 30, 1998 and in the Risk Factors section of the Company's most recently filed registration statement on Form S-3 filed in June 1998.
The following financial statements have been restated to
incorporate the acquisition of PersonaLogic, Inc.
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