AOL turns earnings around

America Online Inc., the world's largest online service provider, turned a big corner today when it exceeded analysts' expectations in its fourth quarter.

Sales in the fourth quarter improved 42 per cent from the same period last year, from $334 million in 1996 to $475 million, with other revenues increasing threefold to $90.1 million. The bulk of the sales derived from other income came from advertising. AOL reported profits of $10.9 million, or 9 cents per share. First Call consensus expected the firm to return a profit of 7 cents per share. AOL also added another 600,000 subscribers in the quarter, bringing its worldwide subscriber base to 8.6 million.

Although AOL appears to be on the verge of breaking out, it still lost more than $500 million, or $5.22 a share, for the year. AOL absorbed more than $400 million in one-time charges this year. Last year, the company reported a profit of $29 million.

The better-than-expected quarter represents a turning point for both the company's perception and financial future. "There has been a dramatic change in perception for AOL in the past three months," said Keith Benjamin, an analyst at Robertson Stephens. "A year ago, there was this pervasive fear that AOL was in danger of being put out of business by regional phone companies and ISPs."