AOL Earnings, Revenues Surge
America Online beat Wall Street's estimates for its third-quarter profits by two cents on Tuesday as it added 1.8 million new subscribers in the quarter.
Shares of AOL (AOL) fell 7 1/2 to 154 1/2 ahead of the results, its first reporting period including Netscape.
The Dulles, Va. Web behemoth reported net income, excluding results from the Netscape acquisition, of $117 million, or 11 cents a share, up 175 percent from 4 cents earned a year ago. (Note: CBS News is the broadcast news provider for America Online.)
Quarterly sales grew to $1.3 billion, which includes Netscape's contribution. This compares to $757 million in the same period a year.
"The Street has come to expect AOL to meet or surpass expectations," said David Levy, Internet analyst at ING Baring Furman Selz. "As a bellwether, this quarter shows that they continue to demonstrate strong growth for themselves as well as the overall industry."
AOL also said it added 1.8 million subscribers in the quarter, exceeding some expectations of 1.5 to 1.7 million. Total subscriber base grew to 16.9 million.
"They're on track to exceed 21 million subscribers by the end of this calendar year," said Ulrich Weil, Internet analyst at Friedman, Billings, Ramsey & Co.
As AOL has been guiding analysts, the length of time members stayed logged on, a key metric for advertisers, was 55 minutes.
Brian Hayward, a portfolio manager at INVESCO Funds Group, and an AOL shareholder, said he wouldn't be surprised if AOL shares slipped following the report given the stock's significant run-up ahead of the earnings report. Takeshi Kawamoto, a portfolio manager at Nomura Asset Management agreed and said he wouldn't be overly concerned about a modest pullback in the near-term.
If history is any guide, AOL will likely do just that.
AOL has delivered a positive surprise as the company has done 7 out of the past 9 quarters, by at least one penny. During the week leading up to those report days, AOL had risen 8.6 percent This compares with a recent low of 112 last week. The day following the report, AOL shares have dipped fractionally on average. A week later, AOL shares had fallen by 1 percent, according to LIMResearch.com.
The tug-of-war battle for MediaOne Group between AT&T (T) and Comcast (CMSCA) has raised questions about AOL's broadband strategy. Some analysts and investors don't believe AOL will shed little light about its strategy during a conference call to address the company's results.
Still, with high-speed bandwidth viewed as the wave of the future of Internet access, much of the investment community has concerns that consumers may go directly to cable operators for high-speed Net connections. This could lead to a slowdown in AOL's booming subscriber growth.
At the moment, AOL has agreements with SBC Communications (SBC) and Bell Atlantic (BEL) to provide high-speed access to consumers over DSL, or digital subscriber lines.
Wit's Cohen sad in his report that "it's imperative for AOL to secure distribution on as many broadband platforms as possible." But so far, AOL has yet to reach a deal with the incumbents in that field: AtHome (ATHM) and Road Runner.
"I'm pleased to see that they (AOL) are beginning to address faster access," said Hayward. "I think high-speed access is moving towards the front burner."
Written By Bambi Francisco, CBS MarketWatch