AOL's Q2 revenue rises, misses expectations

Hailing the success of its ongoing integration, AOL Time Warner Inc. (AOLTW) on Wednesday reported a rise in its second-quarter revenue of 3 percent to US$9.2 billion, though it still reported a net loss of $734 million.

A Thompson Financial/First Call survey of analysts predicted revenue of $9.74 billion, however, and the shortcoming caused the company's stock (AOL) to slip in early morning trading.

AOLTW, the world's largest Internet and media company, said EBITDA (earning before interest, tax, depreciation and amortization) for the quarter ended June 30, grew 20 percent to $2.5 billion, compared to $2.1 billion for the second quarter of 2000, the company said in a statement.

The company reported diluted cash earnings per share of $0.32, compared to $0.23 per share for the same quarter last year, AOLTW said. That is above the $0.28 per share that had been predicted by 25 analysts polled by Thomson Financial/First Call. The company defines diluted cash earnings per share as pretax income excluding noncash amortization expenses and other charges. The company reported a net loss of $734 million, or $0.17 per share, however, compared to a net loss of $927 million, or $0.22 a share a year ago.

In a conference call Wednesday morning, AOLTW Chief Executive Officer and President Gerald Levin praised the company's ability to maintain growth and deliver on its recent merger, "even during a difficult business climate," adding that "permanent cost management is a way of life" for the company.

Although the company has been hit by a worldwide economic slump which has resulted in a decline in advertising revenues, the company said that it is being driven forward by marked growth in its subscriber base.

"The heart of our business model is subscription," said Levin.

Subscriptions surpassed 135 million in the second quarter, up 17.9 million from the second quarter of 2000. The ISP (Internet service provider) business alone added 1.3 million members worldwide, bringing the total AOL membership to 30.1 million subscribers, the company said.

And although AOL announced last May that it was raising the fee for its monthly unlimited Internet access by $1.95, the fee hike didn't begin until July 1, and did not come into play for its second-quarter earnings. Levin said that he does not expect the rate increase to affect subscription numbers.

For the third quarter, AOL is going to focus on growing broadband opportunities, its AOL Anywhere wireless strategy, and the new version of its software due to be released this quarter, AOL 7.0, Levin said.

The company outlined AOL 7.0's features in its earnings release, saying that the new client boasts a more localized user experience with local content and advertising, added Mail, Buddy List and instant messaging features, as well as broadband and narrowband programming, You've Got Pictures 2.0, and "advancements in online music."

In terms of music, Levin noted during the conference call that online music service MusicNet, a joint venture between AOL Time Warner, Bertelsmann AG, EMI Recorded Music and RealNetworks Inc., would be "up and running" in the third quarter. The company did not mention, however, whether or not it had plans to integrate MusicNet services into its new software.

In other financial results, AOLTW also reported revenue in advertising and commerce of $2.3 billion. And while the advertising market itself is in a funk, AOLTW said that it was the second-largest advertiser in the United States during the second quarter, underscoring the recently merged company's ability to leverage its diversified holdings.

As for the merger between AOL and Time Warner, completed on Jan. 11 of this year, the company said it would cost approximately $147 billion, including transaction costs.

Looking forward, AOLTW Chief Financial Officer and Executive Vice President Michael Kelly issued a guidance for the company's year-end results, predicting revenue of $40 billion, EBITDA of $11 billion and earnings per share of between $1.28 and $1.32.

And although company executives waxed positive about the company's second-quarter results, the fact that the company has missed revenue expectations sent its stock dropping 9.5 percent Wednesday morning to $44.74.

AOLTW has six primary specialties, including the world's largest ISP AOL, its cable business, film division, network division, music division and its publishing business, the company said.

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