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AOL 2Q beats estimates
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January 27, 1999: 8:07 p.m. ET
Online service provider reports 133% boost in e-commerce, ad revenues
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NEW YORK (CNNfn) - A stronger-than-expected boost in electronic-commerce and advertising revenues helped push America Online Inc.'s second-quarter earnings past Wall Street estimates, the company reported Wednesday.
Separately, AOL, one of the high-flying Internet stocks, announced a 2-for-1 stock split.
And the company disclosed in a regulatory filing it has sold its stake in the Excite Web portal.
The Dulles, Va.-based company posted a profit of $88 million, or 17 cents a share, on $960 million in revenue. Analysts polled by First Call expected America Online (AOL) to report earnings of 14 cents a share.
AOL easily beat its year-ago results, when the company reported earnings of $20 million, or 4 cents a share, on $592 million in revenue.
AOL, the world's largest online service provider, continues to build its subscriber base. The company logged $779 million in revenue from subscriptions, a 61-percent increase from a year ago. AOL added 1.6 million new members in the quarter, bringing its total membership to 15.1 million users.
AOL shares surged 7 to close at 162 in Wednesday trade, then climbed to 165-1/2 in after-hours trading.
E-commerce gains
Most notably, AOL reported a 133-percent increase in e-commerce and advertising revenues, totaling $126 million, compared with $54 million in the year-ago quarter.
"That was the big surprise," said Mark Cavallone, analyst at S&P Equity Group. "It's a function of how strong the holiday season was" for the industry.
During the holiday season, AOL said its members spent an estimated $1.2 billion with online retailers available through AOL's service.
In the long term, company officials and analysts expect AOL to make even greater strides in e-commerce.
In November, AOL agreed to acquire Netscape Communications Corp. (NSCP) in a $4.2-billion stock swap. That same day, AOL also struck a three-year alliance with Sun Microsystems Inc. (SUNW) to develop e-commerce solutions. The combined deals represent an opportunity for AOL to accelerate its push into e-commerce.
"The addition of Sun will help bring merchants online and help them set up shop" on AOL's service, Cavallone said.
"We know partners of ours have not built systems big enough to handle the traffic they will have," said Bob Pittman, AOL president and chief operating officer. "There are also a number of companies that won't sign deals with us until they have that network built."
High-speed business
Despite that blockbuster deal and the company's ever-expanding subscriber base, AOL is likely to face more intense competition down the road, particularly in light of @Home Corp. 's (ATHM) proposed $6.7-billion takeover of Excite Inc. (XCIT).
@Home offers high-speed Internet access over cable wires, and analysts says AOL needs to outline a specific high-speed strategy to keep up with competition in that growing market.
AOL previously has expressed interest in working with AT&T Corp. (T) -- which would end up with a major stake in @Home when its merger with Tele-Communications Inc. (TCOMA) is completed -- in offering high-speed Internet access.
AOL also recently announced a deal under which it will offer Bell Atlantic Corp. 's (BEL) digital subscriber line access to AOL customers in the Bell Atlantic service area.
Steve Case, AOL chairman and chief executive officer, said AOL will begin offering DSL upgrades to its customers this summer, adding that the company is pursuing additional high-speed offerings for its subscribers.
"We're looking forward to doing other deals with other companies in other broadband technologies down the road," Case said.
For the first half of AOL's 1999 fiscal year, the company logged a profit of $157 million, or 30 cents a share, on $1.8 billion in revenue, compared with 1997 earnings of $38 million, or 8 cents a share, on $1.1 billion in revenue.
Separately, AOL set a 2-for-1 stock split available to shareholders of record on Feb. 8. The split will take effect on Feb. 22, and AOL will have approximately 933 million shares outstanding after the split.
Company sheds Excite stake
Also, on the heels of the @Home-Excite deal, AOL sold its 9.5-percent stake in Excite, according to a Securities and Exchange Commission filing Wednesday.
The 4.93 million shares, which the company sold Jan. 20 in a block transaction, raised about $500 million.
The company's AOL Ventures subsidiary continues to hold warrants to purchase preferred stock that can be converted into 650,000 Excite common shares.
With the $500 million it fetched from the Excite sale, AOL currently has nearly $2 billion in cash assets.
-- by staff writer John Frederick Moore
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