Juno posts large loss on customer acqusition costs

Larry Dignan

Jan. 2, 2002 4:43 p.m. PT

2 min read

Juno Online (Nasdaq: JWEB) on Tuesday reported a first quarter net loss of $1.28 a share as the company spent heavily to acquire subscribers. The results topped First Call Corp. consensus estimates, which called for a loss of $1.36 a share.

Juno, which offers free Internet access, has been working to convert its free customers to paying ones. Juno's business model revolves around a mix of free and billable Internet access, broadband services and advertising.

Subscriber acquisition costs in the first quarter were $44.8 million, up from $16 million in the fourth quarter. Juno said it plans to front-load its marketing spending in 2000, with a slight decrease in marketing spending in the second quarter and major decreases in the second half.

The cost of acquiring customers, typically direct mailings, accounted for $1.20 a share in Juno's net loss. In a statement, Juno said its hefty spending was "largely discretionary" and could be curbed based on "the cost-effectiveness of direct mail advertising, the availability of funding, and overall market conditions."

Revenue for the quarter ending March 31 was $24 million, up 147 percent from a year ago. Billable service revenue was $16.7 million with advertising and transaction fees bringing in sales of $7.3 million.

As of March 31, Juno had 3.05 million active accounts (free and billable), 661,000 paying customers and 9.43 million registered subscriber accounts.

Juno's effort to convert free users to paying customers is a move to bring down costs. Free service expenses jumped to $6.1 million in the first quarter, up from $1.6 million in the fourth quarter. Free customers cost Juno $1 per user. Juno said it is hoping revenue will top expenses as early as the second half of 2000.

The company has $128.8 million in cash and cash equivalents, courtesy of a February secondary offering that raised $81.1 million.

Shares of Juno took a hit on the secondary offering news and have been slumping ever since. Juno surged in December after PaineWebber gave the stock a $120 price target based on Juno's free ISP plan.

Juno, which also topped estimates in its fourth quarter, has a 52-week high of 87 and a low of 7. The company competes with a host of ISPs including America Online (NYSE: AOL), Prodigy (Nasdaq: PRGY), NetZero (Nasdaq: NZRO), EarthLink (Nasdaq: ELNK) and Microsoft's (Nasdaq: MSFT) MSN.