AOL tops 3Q forecasts

America Online (NYSE: AOL) topped estimates in the third quarter.

After market close Tuesday, the world's largest Internet service provider reported fiscal third quarter net income of $271 million, or 11 cents per share, excluding non-recurring items. First Call's survey of 31 analysts predicted a profit of 9 cents per share for the three month period ended Mar. 31.

Including a one-time gain of $275 million from stock sales, AOL earned $438 million, or 17 cents per share.

Third quarter revenue rose 47 percent year-over-year to $1.8 billion. Advertising, commerce and other revenue totaled $557 million, a 103 percent gain from a year ago and a 27 percent improvement over the fiscal second quarter. Subscription revenue increased to $1.15 billion, up 33 percent fromthe year ago period.

"America Online's business has never been more robust," CEO Steve Case said during an afternoon conference call with analysts. "We have never moved more quickly to capitalize on opportunities across so many fronts."

Sales and marketing expense declined to 14.5 percent, compared to 17.4 percent in the same period a year earlier. Operating income rose 155 percent year-over-year to $383 million, or 20.9 percent of revenue. AOL's operating income was 12 percent a year ago.

The company's backlog of advertising and commerce revenue stood at $2.7 billion at the end of March, compared to $2.4 billion in December.

AOL's core service added 1.7 million members to boost its total subscriber base to 22.2 million. The Compuserve 2000 brand picked up 373,000 members to reach 2.7 million. Gateway.net gained 100,000 subscribers to reach 850,000 total.

"Increasing competition from broadband and free services, contrary to some dire predictions, clearly is not affecting us as some pundits had predicted," Case told analysts. "We've said previously that we expect to take about half the people coming online, and I think we're hitting that."

Subscribers to the AOL Service averaged 64 minutes online daily in the third quarter, a 16 percent increase.

AOL's Netscape Netcenter Web portal now has more than 28 million registered users, or more than double a year ago, the company said. Netscape's enterprise software business generated revenue of $126 million, an 8 percent gain sequentially. International software license revenue rose to $47 million, more than double from a year earlier.

ISP business also grew overseas. AOL International gained 434,000 members to 4.4 million, AOL Europe now has almost 3.5 million, and the free Netscape Online service in Great Britain lists 519,000 registered users.

The AOL Instant Messenger brand gained 21 million registrants to bring its total user base to 91 million. ICQ picked up 9.3 million users in the quarter and ended March with 62.4 million registered users. A new version, ICQ 2000A, will be launched next week, AOL said.

AOL's Digital City network of local information sites will finish its expansion from 60 to more than 200 markets on Wednesday, the company said.

Wall Street analysts expected AOL to slightly exceed their published estimates.

"AOL appears to have had another strong quarter (the company's subscriber pre-announcement was above our estimates), and the stock remains a core holding," Merrill Lynch analyst Henry Blodget wrote earlier this week. "We continue to believe that AOL will be a good stock to own near-term and long-term."

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