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AOL profits beat estimates

Bolstered by a growth in subscribers, advertising, and e-commerce revenues, America Online posts improved second-quarter results.

Bolstered by a growth in subscribers, advertising, and e-commerce revenues, America Online (AOL) posted improved second-quarter results today, slightly beating analysts' expectations.

The online giant posted net profits of AOL at a glance $20.8 million, or 17 cents a share, for the quarter, compared with a loss of $129.1 million or $1.37 a share a year ago.

Analysts had expected AOL to post a profit of 16 cents a share, according to First Call.

Revenues, meanwhile, rose to $592 million for the quarter, up 45 percent from a year before. AOL reported revenues from its online service totaled $483.2 million, up 37.6 percent over a year ago. Its advertising and commerce revenues, along with other earnings, reached $108.8 million, compared to $58.2 million a year ago. America Online also said its backlog of advertising and commerce contracts rose $96 million in the quarter to about $320 million at the end of the quarter.

Just a year ago, AOL was trading in the mid-30s. Today it closed at a historic high of 111-1/8, up 11/16 over yesterday. Its board of directors, as expected, also announced a 2-for-1 stock split.

Under the terms of the split, AOL shareholders will receive one additional share for every share they own as of February 23. The split will occur on March 16, leaving AOL with about 220 million shares outstanding. The split marks the fourth the company has undergone since 1994.

During the quarter, AOL's worldwide membership reached over 10.7 million and surpassed 11 million on January 20. The company's marketing expenses during the quarter were reduced to $96.8 million, or 16.4 percent of revenues, from the prior year period's $151.8 million or 37.1 percent of revenues.

Members' average daily usage reached 41 minutes per member, up from 21 minutes in the same quarter last year. Simultaneous usage of the service during peak periods grew to more than 560,000 during the quarter, almost tripling peak usage of a year ago; it has since grown to more than 640,000.

Although some were ready to write off AOL last year, no one is willing to take such a stand today. After all, with 11 million members, AOL is about four times larger than its nearest competitor. That doesn't include the roughly 2 million members it secured in its recent acquisition of the consumer service of its closest rival, CompuServe.

Nevertheless, AOL continues to be subjected to complaints from members about outages, email problems, difficulty installing software, the impersonalization of the service, and too much junk mail, to name a few concerns.

Yesterday, AOL increased its price by $2--from $19.95 to $21.95--a move that is sure to make waves in the industry. While some are pledging to abandon ship due to the price increase, many analysts applauded the move, saying it will help AOL beef up its revenues.

When the company went to flat-rate pricing in December of 1996, it changed its revenue model from one where the service primarily got money through hourly fees, which users paid sometimes in massive quantities, to one where the service increasingly would rely on e-commerce and advertising.

AOL has been true to that model, continually striking deals with the likes of Tel-Save Holdings and CUC International, which pay the online giant millions of dollars to market to service members.

It also has steadily beefed up its commerce offerings, focusing on online stores with heavy marketing and new deals.