CompuServe stock surge brief

Though CompuServe stock surged in early trading after the company posted first-quarter results that beat Wall Street's forecast, it ends the day even. Could the announcent of flat-rate pricing be responsible?

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CompuServe (CSRV) today saw its stock briefly rise as high as 5.7 percent in morning trading, after it shrunk its first-quarter loss, exceeded forecasts by Wall Street analysts, and announced plans for flat-rate pricing yesterday.

Compuserve at a glance Shares of CompuServe rose as high as 12-5/8 in morning trading, but closed the day unchanged from yesterday's close of 11-15/16.

The company reported a net loss of $4.1 million, or 4 cents a share, compared to a loss of $29.6 million, or 32 cents a share, in the same period a year earlier. Analysts expected the company to report a loss of 7 cents a share, according to First Call.

But while the company trimmed back spending by $45.5 million, which improved results, the company's revenues also fell back slightly. The company reported revenue of $205.7 million for the fiscal first quarter ending July 31, compared to revenue of $208.6 million recorded in the same period a year earlier.

The company attributed the first-quarter revenue decline to continued slippage in its U.S. online subscriber base. CompuServe Interactive subscribers in the U.S. declined by 94,000 to 1.4 million, compared with 1.5 million subscribers in the previous quarter.

CompuServe also unveiled its plans for a $24.95-per-month flat-rate pricing option in the U.S. and Canada; certain value-added services will continue to carry additional fees. It will become effective to customers in the United States and Canada as of October 1. (See related story)

Frank Salizzoni, chairman and acting CEO, warned in a statement that "the new pricing plan may affect our ability to achieve our stated goal to reach or exceed the break-even point in earnings sometime in the second half of the current 1998 fiscal year."

The new pricing plan could also push back H&R Block's professed plan to spin off the remaining 80 percent stake in CompuServe.

H&R Block has been waiting for the company to turn profitable before attempting to spin off its stake to H&R Block shareholders. Last April, CompuServe acknowledged it would consider looking for a buyer, but analysts discount the likelihood of such a transaction. Analysts have said a spin-off is more likely.

CompuServe, which has posted losses for the past six consecutive quarters, may get a boost in the future from a further expansion of its Network Services division expansion overseas.

While the uncertainty of the new pricing may aversely affect the profit goal, the company said yesterday that it struck a deal with four major international networks to carry Net traffic throughout Europe and Asia.

The deals could generate growth and overall improvement in financial performance for CompuServe. That is the key to H&R Block spinning off its stake, H&R Block spokeswoman Linda McDougall told CNET's NEWS.COM last week.

"We have never withdrawn spinning off CompuServe as an option," McDougall said. "We continue to believe separating it is in the best interest of the shareholders."

And analysts say the international market will continue to be a gold mine for online services in the coming years.

"We expect that the online services market will accelerate during the second half of this year, and will continue to grow rapidly during the next three to four years, with international subscriber growth being a primary driver," said Marc Usem, an analyst with Salomon Brothers, in a recent report.

He also noted that total revenues for the online services industry will likely reach $12.9 billion by the year 2000, from $3 billion in 1996.

However, CompuServe and Microsoft Network have experienced a slowdown, as both companies are in the process of restructuring their service offerings, Usem added.

CompuServe, which completed a restructuring last summer that resulted in roughly 150 layoffs, posted a net loss of $29.6 million, or 32 cents a share, for its fiscal first quarter last year. Revenue, which was $208 million, has been largely flat for the past four consecutive quarters.