US Report: AOL slips despite strong Q4

Shares of America Online fell 3 ½ to 107 ½ in early trading Wednesday despite better-than-expected fourth quarter earnings and an analyst upgrade.
Written by Larry Barrett, Contributor

AOL shattered analysts' estimates in its fourth quarter, returning a profit of $57.3m (£34.94m), or 23 cents a share, on sales of $792m (£482.92m). First Call consensus expected earnings of 19 cents a share in the quarter.

Prudential Securities on Wednesday raised its rating on AOL to "buy" from "hold." But Everen Securities said Wednesday it cut the intermediate term rating on America Online Inc. to "market perform" from "outperform" because its price target of $114 has been reached. Everen said it maintains its long term rating as an "outperform."

For the year, AOL pocketed $134m (£82m), or 55 cents a share, on sales of $2.4bn (£1.46bn). The $2.4 billion in sales represents a 54 percent jump from fiscal 1997 when it earned $13.4m (£8.2m), or 7 cents a share, on sales of $13.4 million.

"AOL's business has never been stronger-- with multiple brands and multiple revenue streams, a cost-efficient infrastructure, an unparalleled relationship with our members and a clear vision," said chief executive Steve Case in a prepared release. In a conference call with analysts, Case said he was comfortable with Wall Street estimates for fiscal 1999 and added that the company is planning other avenues of growth. Wall Street is expecting earnings of 91 cents a share.

Case said AOL is developing CompuServe and ICQ portals. In the fourth quarter, total sales grew 67 percent versus the year-ago quarter when it lost $11m (£6.7m), or 6 cents a share, on sales of $475m (£290m).

Last quarter, it earned $18m (£11m), or 9 cents a share, on sales of $693m (£422m). The fourth quarter results do not include a series of charges AOL expects to absorb for the settlement of a shareholder suit, as well as write-offs for in-process research and development in connection with its acquisitions of Mirabilis Ltd. and NetChannel Inc.

In the quarter, AOL added another 665,000 members, an 11 percent increase over fiscal 1997's fourth quarter new member additions. Over the full year, membership climbed 3.9 million, compared to 2.4 million in 1997. AOL ended fiscal 1998 with a total of 12.5 million members worldwide.

Its service revenues climbed to $667.5m (£407m), a 73 percent increase over the year-ago quarter. Advertising, commerce and other revenue rose to $124.8m (£76m), with the advertising and commerce fees climbing to $83.1m (£51m), an 87 percent increase over the fourth quarter of 1997.

America Online Inc. shares have been nothing short of spectacular in the past year. A year-ago, it was trading at 32. Twenty-three of the 24 institutional investment firms following the stock maintain either a "buy" or "strong buy" recommendation

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