America Online reports its third straight profitable quarter and comes within a breath of hitting its membership goal earlier than expected.
Analysts said the results were largely a bright spot that comes as the online giant strives to overcome the barrage of criticism it encountered from nearly crippling network problems earlier this year. The company also has been grappling with a multistate investigation and subsequent settlement with attorneys general over AOL members' complaints about paying for service they couldn't access due to heavy network traffic.
"We are pleased to have made significant progress over the past quarter in building a foundation for sustained profitable growth," Steve Case, AOL's chairman and chief executive, said in a statement. "Our strong increase in worldwide membership, combined with continued high member retention and careful management of costs, contributed to these improved results and puts us ahead of schedule to reach the 10 million member milestone."
AOL reported net income of $19.2 million, or 16 cents per share, for the first quarter ended September 30, compared with a loss of $353.7 million or $3.80 per share, a year ago when the company took a charge for changing its accounting practices.
In the most recent quarter, however, AOL had a gain from the sale of its Excite stock, which accounted for 4 cents of the 16-cent-per-share profit. Without the gain, the company would have posted a profit of 12 cents a share, which was in line with analysts' expectations, according to First Call.
Revenues were up 49 percent to reach $521.6 million for the quarter, compared with year-ago figures of $350 million. Also, revenues from subscriber fees--AOL's main source of funds--jumped 40 percent over last year in the quarter to reach $434.2 million.
However, revenues from advertising and e-commerce were $68.2 million, lower than expected, according to Abishek Gami, an analyst with Nesbitt Burns Securities. The online service attributed the drop in e-commerce to a slowdown in telemarketing, he said.
Gami added that revenues may have been lower in the advertising and e-commerce departments because AOL is no longer taking a full accounting for all its marketing deals during a single quarter. Instead, it is spreading out revenues over several quarters, as it actually gets the money in hand.
Although advertising and e-commerce revenues did not reach analysts' expectations, AOL's membership grew to 9.4 million worldwide during the quarter, just 600,000 shy of the company's goal of 10 million members by the end of the year.
"They grew subscribers much faster than expected," Gami said. "That's a bullish sign for them."
With three good quarters under its belt and continuous announcements about new partners willing to pay a premium to be carried on the online service, it appears AOL is moving ahead, according to analysts.
Just today, the online service announced another such deal in which a company called JFax will pay AOL $16 million against future revenue-sharing over three years in exchange for AOL promoting JFax as an exclusive "unified messaging service."