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BBN sees mixed results

BBN's Internet division does well, but does not contribute enough to boost the company's quarterly results.

CNET News staff
3 min read
BBN's (BBN) Internet service division led the way for increased revenues but did not pull the company out of a loss for the quarter.

The company reported an operating loss of $10.5 million, or 48 cents a share, for the second quarter ending December 31. This is down from last year's operating loss of $7.4 million or 45 cents per share.

BBN missed analysts' expectations of a loss of 44 cents a share, according to First Call. But the negative quarterly numbers did not paint the whole financial picture. The company's stock took a hit during morning trading, falling about 5-1/2 percent after the report, but it rebounded and actually closed up 3/4 of a point at the end of the day, to 18-3/8.

"It was really a bad news-good news quarter," said Pacific Growth Equities analyst Stephen Franco. "They exceeded my expectations by $4 million but missed my bottom line by a penny."

BBN reported second-quarter revenue of $83.9 million, a 54 percent increase from $54.6 million in the same quarter a year ago.

"During the second quarter, BBN achieved significant revenue growth, reflecting continued strong customer demand for BBN Planet's Internet services," BBN chairman and CEO George Conrades said in a statement. "America Online-related revenue was $18 million, representing 46 percent of BBN Planet's revenue for the quarter."

BBN Planet, BBN's Internet services division, contributed $39.2 million, about 47 percent of total revenue for the quarter. That represents a 142 percent increase over revenues of $16.2 million for the year-ago quarter.

"The good news is that [BBN Planet] is all driven by revenue," and signing up 600 customers during the quarter means a lot of potential revenue growth, Franco said. "But they have to spend a certain amount of money to service them."

Spending ahead of demand will reduce the congestion and problems for which America Online has recently drawn fire, he added.

Continued investment in BBN Planet's network infrastructure, sales, and marketing led to the expanding operating loss.

"We believe that the fiscal-year 1997 revenue growth in BBN's value-added services will not be sufficient to offset these increased infrastructure investments," Conrades said. "We expect that these investments will increase BBN Planet's operating loss in the third quarter" and do not expect it will break even by the fourth quarter of fiscal year 1997, he added.

But some analysts say that the long-term benefit is worth the wait. "While some short-term hit on profitability has been given up, in the long run it will pay off," Franco noted.

Franco expects the company to break even in either the quarter ending in September or December. That is pushed back a quarter or two from his original estimate of June 1997. He is not changing his rating of "strong buy."

The company also announced an expanded partnership with AOL to expand AOLnet, a portion of which is built and operated by BBN. Since signing its four-year, $340 million agreement with AOL in September, BBN has received additional work on its portion of AOLnet, expanding the value of the contract to about $500 million.

"The other part of the good news is their contact with AOL. That has increased to $500 million, [up by] $160 million," Franco said.