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AOL sales continue to sputter

AOL Time Warner says revenue at its troubled Internet division remains weak and could be 5 percent lower than current projections.

The soft Internet advertising climate is continuing to take its toll at AOL Time Warner, which said Monday that revenue at its America Online division will remain weak.

AOL Time Warner, which is currently overhauling its troubled AOL unit, said that it expects 2002 revenue from advertising and e-commerce at the unit to be around $1.7 billion, although sales could come in about 5 percent lower. Earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to be between $1.7 billion and $1.8 billion.

That $1.7 billion sales target is in line with some analysts' expectations, but represents a significant decline from the previous year, when AOL recorded $2.7 billion in e-commerce and advertising revenue. A few analysts predicted that AOL's prospects will worsen. Goldman Sachs analyst Anthony Noto estimated that the division's fiscal 2003 revenue would drop even further to $1.35 billion.

Noto singled out AOL among other online media companies such as Yahoo, Lycos and Microsoft MSN, saying he believed "AOL will continue to cycle through lost contracts and other unsustained online advertising revenue sources."

"Notably we do not believe the company will see year-over-year growth in online advertising before (the second quarter of 2003) at the earliest," he said in a research note.

AOL Time Warner said it expects that EBITDA will grow at the low end of its previously announced 5 percent to 9 percent range, but emphasized that other parts of its business were strong. Revenue growth across the entire company should be within the previously announced 5 percent to 8 percent range.

According to First Call, analysts are expecting AOL Time Warner to report revenue of $41.9 billion for fiscal 2002, up from $38.2 billion in 2001. Analysts are expecting 2002 earnings of 87 cents a share.

The AOL unit has suffered significantly from a weak advertising market. In the second quarter, advertising and commerce revenue fell 42 percent, down from the previous quarter's 31 percent drop.