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AOL edges by 2Q expectations

America Online beats estimates by a penny, reporting quarterly earnings by $224m (£138.88m)

After market close Wednesday, the online service reported fiscal second quarter net income of $224m, or 9 cents per share, excluding one-time events. First Call's survey of 35 analysts predicted a profit of 8 cents per share for the quarter ended December 31.

Shares of AOL traded at 65 in afterhours activity immediately following the earnings release. The stock closed Wednesday's regular trading at 64 7/8, up 3 5/8 for the session.

Including a pre-tax gain of $111m from an investment in Sandpiper Networks, a $30m charge for buying Gateway.net's subscribers, and a $5m expense related to the purchase of Tegic Communciations, AOL earned $271m, or 10 cents per share.

Second quarter revenue increased to $1.6bn, a 41 percent gain year-over-year.

Wednesday's report didn't surprise PaineWebber analyst James Preissler. "We believe AOL could beat EPS estimates by a penny," Preissler said in a research note released Wednesday morning, prior to the earnings release. "However, due to the magnitude of scale involved, we do not expect the company to 'blow away' Street estimates. ... For every penny of upside in EPS, the company would have to produce $25m of extra net income, clearly quite a significant amount in order to move the needle in a meaningful way."

Subscription revenue gained 36 percent year-over-year to almost $1.1bn. America Online ended the second quarter with 23.8m subscribers. The AOL service added 1.8m new members during the quarter, ending December with 20.5m subscribers. Compuserve 2000 picked up 440,000 members; Compuserve's total membership now stands at 2.5m, compared to 2.2m in the first quarter. AOL also recorded more than 740,000 subscribers through Gateway.net.

AOL's latest version of its client software was rapidly adopted. AOL 5.0 now handles almost 60 percent of sessions.

Advertising, commerce and other revenues rose 79 percent over the same period to $437m. AOL members spent $2.5bn online during the 1999 holiday season, more than double the comparable period a year earlier. The average AOL buyer spent $300 online, a 50 percent gain from 1998.

At the end of December, AOL's advertising and commerce backlog totaled $2.4bn.

Among America Online's Web brands, the ICQ message service picked up 7.9 million users, bringing its total base to 53.1 million, including 17.9 million active users. AOL Instant Messenger and the related Buddy List service reached 70 million registered users by the end of December.

For full coverage of the AOL merger, see the AOL-Time Warner News Roundup.

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