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Netcom belt-tightening pays off

The online service beats Wall Street's first-quarter expectations by a wide margin, cutting expenses and tapping new revenues.

2 min read
Netcom (NETC) today posted a smaller loss than expected due to tightened up operating expenses and ramped up revenues.

The online provider's loss for the quarter ending March 31 was $9.2 million, or 79 cents a share, compared to a loss of $6.6 million, or 59 cents a share, for the year-ago period.

Wall Street expected Netcom to post a loss of 97 cents a share, according to First Call.

Shares of Netcom rose in trading during the day, in light of the announcement.

Netcom, meanwhile, has narrowed its loss over the past two consecutive quarters. It reported a loss of $11.5 million in the previous quarter.

The online service posted a 62 percent jump in revenue to $39 million, up from $24.1 million last year.

"Netcom posted better than expected revenue and did a masterful job of controlling operating expenses," said Charles Finney, an analyst with Volpe, Welty & Company. He raised his 1997 revenue expectation to $171 million, up from $166 million, and cut his expected per share loss for the year to $3.07 versus $3.54.

"We were able to increase the average revenue per customer due to new product bundles," said company spokeswoman Rebecca Wallo.

She noted that Netcom has also been working to reduce some of its expenses, such as sales and marketing.

"We temporarily deferred some advertising, but we will be launching a new campaign for new products this quarter," she said.

Total customer count at the end of the period was 580,000, up from 391,000 recorded at the end of the first quarter last year.

Netcom's hosting and dedicated service generated $5.8 million in revenue, and the company expects that number to grow as it refocuses on business services for small office/home office users, said Wallo.

This month, the company's flat dial-up service fees will increase to $24.95 from 19.95, as part of its transition to the business market from the unlimited consumer service arena.

"The dial-up business is viscous and there is very little customer loyalty. But, when a corporation gets connected to the Internet they aren't going to hop around to save $50 a month. They will stay connected as long as they are getting good service," said Arthur Newman, an analyst with Gerard Klauer Mattison.