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HolidayBuyer's Guide
Tech Industry

Solid quarter for AOL

The online giant beats analysts' estimates and announces that it will acquire NetChannel, moving it closer to launching an AOL-branded interactive TV service.

America Online beat analysts' expectations today, citing gains in advertising and electronic commerce, and said it would acquire NetChannel, a Web-enhanced television company.

The online giant said that net income for its fiscal third quarter ended March 31, came in at $39 million, or 16 cents per share on a diluted basis, before special charges. That compares with a net loss of $4.7 million, or 2 cents a share, reported for the same quarter a year ago.

Wall Street analysts had expected profits of 12 cents a share, according to First Call.

Including special charges, net income for the AOL at a glance quarter would have totaled $18.6 million, or 8 cents per diluted share.

"We substantially improved our cash position and we continued to tightly manage costs," company chairman and chief executive Steve Case said in a statement. "During the quarter, we moved quickly to integrate CompuServe and put in place a new organization to support our AOL, CompuServe, and AOL Studios product groups."

During the quarter, AOL incurred two special charges that had been previously announced. In connection with the restructuring of AOL Studios, the company recorded a charge of $35.1 million. In addition, the online giant took a $9.7 million charge for acquired research and development related to its January acquisition of Personal Library Software (PLS), a developer of information indexing and search technologies.

Revenues for the latest quarter increased to a record $693.6 million, up 54 percent from the $450.1 million reported for the same period last year.

AOL also announced today that it will acquire NetChannel, and said the deal will advance the company's "AOL Anywhere" strategy of making the AOL brand available on all emerging interactive platforms.

The acquisition will allow America Online to use NetChannel's programming development experience and technology to accelerate development of an AOL-branded service that offers interactive content developed for the television medium.

America Online expects to take a $20 million charge related to NetChannel in current quarter, Lennert Leader, the company's chief financial officer, said in a conference call.

AOL's commerce and content partnerships with Bloomberg, Sage, Intuit, TheStreet.com, and Standard & Poor's Personal Wealth have boosted its backlog of advertising and commerce contract revenues--revenue that has been collected but not yet booked--to reach $427 million, up $107 million from the December quarter.

Commerce revenue alone grew to $72.7 million, compared with $24 million a year ago, Leader said. The current quarter's commerce revenue includes the benefit of deals that were expected to close during the June quarter, therefore, he said, the June quarter will not see as big of a jump.

While marketing and advertising spending during the fiscal 1998 March quarter were reduced to $84.2 million, or 12.1 percent of revenues, from the prior-year period's $92.8 million, or 20.6 percent of revenues, Leader said that marketing spending will increase "substantially" during the June quarter.

He said that, because the summer months traditionally are slow in terms of signing up new customers, AOL would increase marketing spending during that time to get people interested in the service.

"We do plan to significantly increase our marketing expenses," he said, adding that, as a result, he asked analysts not raise the company's earnings expectations for the June quarter.

AOL said that its consumer service expanded its membership base by 1.15 million members for a total of 11.9 million members worldwide as of March 31. In mid-April, AOL said that its membership had topped 12 million worldwide.

In addition, CompuServe had a worldwide total of 2.2 million members as of March 31, excluding members of its SpryNet Internet service. The company's marketing expenses during the fiscal 1998 March quarter were reduced to $84.2 million, or 12.1 percent of revenues, from the prior year period's $92.8 million or 20.6 percent of revenues.

Frederick Moran, an analyst at Furman Selz, reiterated his "strong buy" rating on the stock today, prior to the earnings announcement.

AOL stock lost 1.5 during trading today to end at 88, compared with yesterday's close of 89.5.