AOL Crunches, <I>Really</I> Crunches, the Numbers

The online service leader beat all analyst estimates and showed strong growth both with and without Netscape in the mix.
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Anyone who's ever doubted the old chestnut about strength in numbers ought to get a close look at America Online's (AOL) numbers. By any measure, using nearly any estimate, AOL pummeled the numbers.

But the company cautioned it wouldn't keep up this pace for the rest of the year.

First, there were AOL's stand-alone numbers, excluding the operating results from and charges related to the recently-acquired

Netscape Communications

, as well as other one-time charges. In the third quarter ended March 31, AOL earned $117 million, or 11 cents a share, edging out not only the

First Call

consensus estimate of 9 cents a share but also the high-end prediction of 10 cents. In the year-earlier period, using comparable numbers, AOL earned $39 million, or 4 cents a share.

AOL-only revenue jumped 55% to $1.09 billion this quarter from $704 million in the same quarter last year. The gross margin for the current quarter was a surprisingly strong 41.1%, up from the December quarter's 38.5%. AOL's membership grew by a record 1.8 million subscribers for the quarter, bringing the total to 16.9 million. Including its

CompuServe

unit, AOL has more than 19 million paying members worldwide.

Pooling AOL's and Netscape's results together created some more impressive numbers. Revenue for the newly reconstituted AOL totaled $1.25 billion for the quarter, up 66% from the $757 million in pooled revenue from one year earlier. Earnings, including pretax gains of $567 million from shares in

Excite

(XCIT)

, amounted to $420 million, or 33 cents per diluted share, compared to a net loss of $78 million, or 8 cents a diluted share, one year earlier.

Without one-time events such as the gain from Excite's shares, AOL's earnings for the current quarter were $109 million, or 9 cents a diluted share.

Combining AOL's results with those from Netscape's

NetCenter

Web site, advertising and commerce revenue amounted to $210 million for the quarter, up 119% from the March 1998 quarter. The backlog of advertising and e-commerce revenue, comprising deals reached but money not yet recognized, grew from $804 million at the end of December to $1.3 billion at the end of March.

In the conference call, AOL president Bob Pittman tried to compare AOL's non-subscription revenue with the revenue of

Yahoo!

(YHOO)

,

Infoseek

(SEEK)

and

Excite

(XCIT)

. Although the comparison was hard to follow, a quick check of the financials confirms that AOL/Netscape's $210 million in advertising and e-commerce revenue for the March quarter beat revenue for the other three portals combined.

AOL chairman Steve Case had his own spin on the numbers during the conference call, telling analysts that they should stop paying attention to what he called the "bizarre" method of calculating a site's reach, or the number of users visiting an online property.

Instead, Case said, they should be looking at frequency -- how often people visit that property -- as well as revenue generation from advertising and e-commerce. "That's really where revenue hits the road," he said. And that's also where AOL's strengths lie.

Elsewhere in the call, Case avoided comment on press reports that AOL might team with

Comcast

(CMCSK)

on a new bid for

MediaOne

(UMG)

. But he did allow, regarding broadband, that it was "critical" for the company to get the economics and its partners right.

"We want to do something as soon as we can, with as many companies as we can, but we want to make sure we do it right," he said.

Ahead of AOL's earnings release, AOL's stock fell 9, or nearly 6%, to close at 153 Tuesday.