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AOL edges by 2Q expectations

America Online (NYSE: AOL) topped analyst forecasts by a penny in the second quarter.

After market close Wednesday, the online service reported fiscal second quarter net income of $224 million, or 9 cents per share, excluding one-time events. First Call's survey of 35 analysts predicted a profit of 8 cents per share for the quarter ended Dec. 31.

Shares of AOL traded at 65 in afterhours activity immediately following the earnings release. The stock closed Wednesday's regular trading at 64 7/8, up 3 5/8 for the session.

Including a pre-tax gain of $111 million from an investment in Sandpiper Networks, a $30 million charge for buying Gateway.net's subscribers, and a $5 million expense related to the purchase of Tegic Communciations, AOL earned $271 million, or 10 cents per share.

Second quarter revenue increased to $1.6 billion, a 41 percent gain year-over-year.

Wednesday's report didn't surprise PaineWebber analyst James Preissler.

"We believe AOL could beat EPS estimates by a penny," Preissler said in a research note released Wednesday morning, prior to the earnings release. "However, due to the magnitude of scale involved, we do not expect the company to 'blow away' Street estimates. ... For every penny of upside in EPS, the company would have to produce $25 million of extra net income, clearly quite a significant amount in order to move the needle in a meaningful way."

Subscription revenue gained 36 percent year-over-year to almost $1.1 billion. America Online ended the second quarter with 23.8 million subscribers.

The AOL service added 1.8 million new members during the quarter, ending December with 20.5 million subscribers. Compuserve 2000 picked up 440,000 members; Compuserve's total membership now stands at 2.5 million, compared to 2.2 million in the first quarter. AOL also recorded more than 740,000 subscribers through Gateway.net.

AOL's latest version of its client software was rapidly adopted. AOL 5.0 now handles almost 60 percent of sessions.

Advertising, commerce and other revenues rose 79 percent over the same period to $437 million. AOL members spent $2.5 billion online during the 1999 holiday season, more than double the comparable period a year earlier. The average AOL buyer spent $300 online, a 50 percent gain from 1998.

At the end of December, AOL's advertising and commerce backlog totaled $2.4 billion.

Among America Online's Web brands, the ICQ message service picked up 7.9 million users, bringing its total base to 53.1 million, including 17.9 million active users. AOL Instant Messenger and the related Buddy List service reached 70 million registered users by the end of December.