America Online 4th-Qtr Profit Seen Rising on Ad Gains
Dulles, Virginia, July 20 (Bloomberg) -- America Online Inc., the world's largest Internet service, is expected to post higher fiscal fourth-quarter profit as a surge in advertising and almost 1 million new subscribers boost revenue. Profit is forecast to be 11 cents a share, the average estimate of analysts surveyed by First Call Corp. The so-called whisper number, the latest unpublished forecasts, is 13 cents. AOL had a pro forma profit of $9 million, or 1 cent, a year ago. Revenue is expected to rise to $1.3 billion from $941 million. America Online has become synonymous with getting on the Internet to many consumers, helping it gain more new customers that its rivals. That's allowed it to forge lucrative marketing agreements with companies that want to sell goods and services to AOL's more than 17 million users. ``These advertising dollars carry huge profit margins,'' said Ladenburg Thalmann & Co. analyst Youssef Squali, who rates AOL a ``strong buy.'' ``We're talking 80 percent'' margins. Still, subscriber gains are typically slow in the quarter in part because consumers spend less time shopping indoors during the summer months. ``The summer is part of it, and there may be a certain amount of slowdown due to the PC sales slowdown,'' said Squali. Dulles, Virginia-based AOL is expected to have gained about 800,000 subscribers during the quarter, a 20 percent increase from the year earlier. It signed up about 1.8 million customers in the previous quarter, when many consumers signed up for the service after purchasing low-cost personal computers over the holiday season.Revenue from subscribers should account for about $930 million of the company's revenue, analysts said. AOL is expected to release its results for the quarter ended June 30 on Wednesday. The year-ago results will be stated as if the its $10.2 billion acquisition of Netscape Communications Corp. in March had taken place. It doesn't include AOL's acquisitions of closely held companies Spinner Networks Inc., Nullsoft Inc. and When Inc.Advertising, E-Commerce America Online is expected to report its revenue from e-commerce and advertising more than tripled to about $300 million from $83.1 million. ``They have this subscriber base they can leverage, that they can sell advertising,'' said Squali. It has used that to its advantage. America Online signed scores of large advertising agreements with companies that span several years. In February, for example, it said it signed a five- year agreement worth up to $500 million market credit cards with Bank One Corp.'s First USA unit to AOL subscribers. AOL said its backlog of advertising and e-commerce revenue was $1.3 billion at the end of March. The backlog represents the revenue that AOL expects to record in future quarters from its multiyear agreements. The company has sought to increase its revenue from marketing alliances and electronic commerce since it shifted to a flat-rate subscription in 1996.Broadband, Rebates Even with the large advertising revenue backlog, the company's shares have slumped about 22 percent since it disclosed third-quarters results, in part on concern about increased competition from rivals such as Excite At Home Corp., which provides Internet services through high-speed cable lines. Still, AOL has been preparing for competition. The company is betting that at two rival high-speed Internet technologies, one using phone lines and the other using satellites, might prove more popular with subscribers than cable. AOL has said it would start the high-speed service over phone lines, called Digital Subscriber Lines, sometime this summer. The service should cost about $40 a month, about equal to what cable-Internet companies charge.