Earthlink on AOL Dialup Acquisition: We Wanted To Buy, But Too Late Now; Other Bigger Options
This story was written by Rafat Ali.
Earthlink (NSDQ: ELNK) announced its Q4 earnings yesterday and the numbers as with others were mixed: it had a profit of $27.3 million compared with a loss of $9.5 million in the year ago quarter (when it was laden with Helio debt/investment and muni WiFi projects as well)...these results include a $78.7 million non-cash impairment charge, partially offset by a $56.1 million tax benefit. Its revenue fell 23 percent to $216.1 million, from $282 million in the year-ago quarter, mainly due to continuing decline in its dialup sub and revenue numbers.
The main query to ELNK CEO Rolla Huff on the earnings call: its interest in buying AOL's dialup business from Time Warner (NYSE: TWX). In the earnings call two quarters ago, Huff was a lot more enthusiastic about it: "We believe we're best-positioned to be the consolidator in this industryWhen an industry reaches a point of maturation and growth stops, it simply makes good economic sense to consolidate into one cost platform." But now, after AOL has dithered and possibly frittered away more of its value and operating synergies with a possible combination, Huff and his team doesn't seem so keen. In the Q4 call yesterday evening: Now their goal is "to more aggressively consider strategic investment alternatives in businesses that we are currently in, beyond just narrowband access. As evidenced by our not announcing any transactions, we found no deals that were compelling in terms of shareholder value creation."
Also, he said that that he has spoken to many of its largest shareholders, and "with very few exceptions the feedback has been to hold on to our cash and stay patient for a while longer until the ability to leverage our financial strength into this developing crisis is better understoodTo be clear with you I did not take their shareholder feedback as a view that they were encouraging me to go out and start buying stuff."
Bigger yet patiently rational is the message, though how patient is the big question for Eartlink. From a research note by Cowen Research analyst late last night: "EarthLink's dialup sub base declined by 9% q/q in Q4:08, compared to 10% declines in the three previous quarters. We continue to believe that EarthLink's dialup base, which generates the majority of its EBITDA, will decline to near-zero in 6 years as the market fully transitions to broadband access."
By Rafat Ali