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AOL's 3Q beats Street
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May 6, 1998: 6:30 p.m. ET
Company reports 8 cent profit, seals deal to buy NetChannel
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NEW YORK (CNNfn) - Online service America Online Inc. beat Wall Street expectations Wednesday as it turned a profit in its fiscal third quarter, helped by huge jumps in advertising and electronic commerce revenues.
The company also announced a long-anticipated deal to buy NetChannel Inc., a provider of Internet access through televisions.
Dulles, Va.-based AOL (AOL) earned $18.5 million, or 8 cents a diluted share, in the quarter which ended March 31 compared to a loss of $4.7 million, or 2 cents a diluted share, a year ago.
AOL's results include a special charge of $35.1 million to reorganize its AOL Studios unit, which focuses on developing content for the online service. It also includes a $9.7 million charge for research and development.
Excluding the charges, the company earned 16 cents per diluted share, beating Wall Street's consensus estimate of 12 cents, as tracked by First Call.
AOL's revenues climbed to $575.6 million in the quarter just ended, up from $381.4 million a year ago. One particularly bright spot for the online service was advertising and commerce revenue which climbed to $117.9 million from $68.6 million a year ago.
The rise in commerce revenue is significant since it represents a cornerstone in AOL's business model. AOL has long bet that once it reached a critical mass of customers, revenue from sales made by its online merchants would help it subsidize the increasing costs of the equipment needed to serve customers.
AOL's 12 million customers used the service an average of 46 minutes a day, up from 41 minutes last quarter. AOL now claims it is capable of handling 675,000 subscribers simultaneously.
However, revamping the system to handle the growing number of customers -- many who have signed up for unlimited access -- hasn't been cheap. AOL has invested more than $700 million in network improvements, expanding customer service and developing the next version of its software.
AOL shares (AOL), which closed down 3-5/8 to 85-7/8, rebounded to 88 in after-hours trading following the earnings report.
AOL finalizes NetChannel buy
Meanwhile, AOL announced a long-rumored deal to buy NetChannel Inc., which provides Internet access through television sets. AOL reportedly began merger discussions with the service in late March.
NetChannel has faced financial difficulties recently. In late April, it notified its 10,000 subscribers that it was shutting down effective May 3 because it had not signed up enough customers to make a go of the service.
NetChannel's software provides Internet access through television set-top boxes that were marketed by Thomson Consumer Electronics of Indianapolis.
AOL said it will use NetChannel's technology to develop a version of AOL that offers interactive content through devices connected to televisions.
"AOL is actively exploring all options to lay the groundwork for what we anticipate will be an important brand extension. We believe our 12 million members, who are already making the interactive experience a part of their daily lives, will be among the most receptive to this new platform," said Barry Schuler, president of AOL Interactive Services.
Netchannel competes directly with Microsoft Corp.'s WebTV unit.
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