Shares of AOL fell $5 1/2 in afternoon trading, or 4.95 percent, as the volume of shares traded reached 21.9 million, compared to an average daily volume of 25.3m.
The note by analyst Henry Blodget said that, based on conversations with the company, AOL is expected to say it added between 750,000 and 850,000 new members during its fourth quarter. That's near the low-end of predictions issued by the company.
AOL was not immediately available for comment.
Blodget said the slowdown was mainly due to international subscriptions, which he said were "significantly weaker" than expected. He speculated that the free access movement in the UK could have been a factor in AOL's international sales. Blodget's note was relatively cautious -- he noted he was "very comfortable" with current earnings estimates and did not see any major catalysts for the company's stock. Estimates currently call for the company to earn 10 cents per share on revenues of $1.3 billion for the quarter ending June 30.
In a follow-up note, Blodget said that while he was expecting to see around 200,000 new subscriptions in the Europe and Japan, the results are closer to 75,000 -- "a steep decline from the 350,000 and 250,000 added in the two prior quarters."
"Although one weak quarter does not make a trend, AOL's international operations are very important to the company's growth story (and the stock's valuation), so it will be important to understand exactly why the growth is so weak," he wrote. Free access is far more common overseas, where companies like Dixon's give service away. FreeServe, which launched last year, is now the largest ISPs in the UK.
Blodget said that while AOL countered Dixon's moves by cutting prices "based on a rash of recent "free" announcements from Microsoft, Dell, and others, it is likely AOL will have to match the free offer to regain momentum."