Services & Software

AOL earnings see boost from commerce, ad revenues

The Internet titan reports fourth-quarter profits that exceed Wall Street expectations on the strength of continued advertising and commerce growth.

Internet titan America Online today reported fourth-quarter profits that exceeded Wall Street expectations on the strength of continued advertising and commerce growth.

The company reported net income of $334 million, or 13 cents a share, for the period ending June 30. Wall Street expected the company to post an 11 cents-a-share profit for the quarter, according to First Call/Thomson Financial's consensus estimates.

AOL's revenue line soared to $1.9 billion this quarter, a gain of 39 percent from the $1.4 billion recorded over the same period last year.

Advertising and commerce revenues accounted for $609 million of the total. Analysts have kept a close eye on this figure as an indication of how well the company is increasing revenues separate from the monthly subscription fees it collects from its 23 million members.

Wit SoundView equity analyst Jordan Rohan said the quarter was strong but not as strong as he had hoped. Rohan said AOL's advertising and e-commerce revenues from last quarter rose 9 percent, which was close to his expectations. However, he had hoped the company's gain would resemble rival Web portal Yahoo's 18 percent sequential growth last quarter.

"This is not a blowout quarter, but it's nothing to be worried about," Rohan said.

Nonetheless, AOL's subscriber growth continued to show strength. The company added 992,000 new members over the quarter and 5.6 million for the full year. Its online service subsidiary, CompuServe, added 146,000 members for the quarter and 1.3 million for the year.

For the full fiscal year, AOL reported net income of $1 billion, excluding one-time charges, and revenues of $6.9 billion. That's an increase from last year's net income of $391 million and revenues of $4.8 billion.

This quarter witnessed the release of AOLTV, the company's much-hyped step into interactive television. The service takes a stab at Microsoft's WebTV service, which enhances TV viewing with Internet features.

AOL is in the process of closing its proposed acquisition of Time Warner. The companies have garnered considerable attention among federal regulators examining the competitive effects of the merged company.

The combination would marry the world's largest Internet company with the world's largest media and entertainment company. AOL Time Warner, as the company will be named, will offer an array of media, including online services, Web portals, recorded music, magazines, book publishing, TV programming, film and cable TV service.

Some of its industry rivals are criticizing the merger for You've got 
Time Warner its alleged stifling effects on competition. Walt Disney plans to file a proposal to spin out the combined company's cable TV networks, according to published reports. Disney alleges that the merged company will dominate interactive television and will stifle competition in the area.

AOL executives, however, remain confident that the merger will go through by the fall.

"We are more excited than ever about the enormous potential of AOL Time Warner," AOL chief executive Steve Case said in a statement. "Shareholders of both companies voted to approve the merger, and we are on track to close this fall."

AOL executives also gave further hints of a pending deal to offer a high-speed AOL service on Time Warner's cable network. As previously reported, expectations were high that the company would announce a deal for carriage on Time Warner Cable after hints made by Case during AOL's earnings call last quarter. During today's call, Case merely repeated his statements, saying the companies are "each in discussions with other cable operators and other ISPs" to strike deals for high-speed cable access.

AOL and Time Warner have made gestures to federal regulators that the combined company intends to open its cable network to outside ISPs. Case has also noted that AOL continues to have discussions with other cable operators to offer its online services on their networks.

But for now, details of these discussions remain undisclosed. AOL executives did not offer a time frame for when an AOL carriage deal would be inked.