Analysts await clear AOL report

The largest online service reports its fourth-quarter results today, and analysts predict a clear view of growth since last fall's loss.

2 min read
America Online (AOL) is about to come clean.

The largest online service is reporting its fourth-quarter results today, and analysts say the numbers will be free of one-time charges and gains, giving investors a clear view of AOL's growth following last fall's red ink spill.

Analysts are expecting AOL to post its second consecutive profitable quarter for the year with an earnings estimate of 7 cents a share. But that still falls short of its results of 19 cents that it posted a year ago.

And during the first nine months of the fiscal year, the online giant posted more than $500 million in losses, in part because a $385 million charge in the first quarter thanks to a new accounting method which required the company to take charges in the quarter that they occur.

AOL has also taken steps to build up its network to alleviate connectivity problems and scale back on new customers sign-ups. But it still holds the worst access record among top Internet service providers.

Analysts are also cautiously optimistic.

"They have built an empire of 8.5 million subscribers and strong brand recognition, and now they can scale back," said Abhisek Gami, an analyst with Nesbitt Burns. "They are growing slower for now, and marketing costs have also dropped."

AOL's troubles in servicing its existing customers led to an agreement in the past year to limit its membership at 8 million customers until it had the equipment and infrastructure to support additional growth. The result: The company spent less on marketing last quarter and AOL posted a slight profit that surprised Wall Street.

Gami noted that AOL must maintain controllable growth to prevent future hiccups.

Meanwhile, brand recognition is likely to attract a wave of advertising revenue from corporate America as more non-technology companies flirt with online promotion.

And AOL recently introduced its expanded business model, designed to attract new revenue streams by going beyond its monthly flat-rate pricing. For example, last month, AOL revised its merchant revenue model. That model charges businesses rent for storefronts on its private online service, generating up-front fees and, in some cases, collecting commissions on merchant sales.

"AOL has done everything right this year, especially in growing non-subscriber revenues," Gami said.

The stock has reacted favorably to the improvements. After sinking to it 52-week low last October of 22-3/3, the stock broke a new yearly high by hitting 75-1/2 in trading yesterday before ending the day at 70-5/8, down 2-3/8 over the previous day.