AOL Earnings Preview: You've Got Fan Mail

Analysts can't stop gushing about how great the online firm's second quarter will be.
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America Online (AOL) is widely expected to beat Wall Street expectations with its second-quarter earnings report this afternoon, engendering continued good cheer. The company even has a half-a-billion-dollar windfall coming on a rival's business deal. Everything's ducky, apart from a little disappointment with Neiman Marcus (NMG) . (But more on that later.)

The past few weeks have seen the online giant basking in practically unceasing sunshine.

Around the turn of the year AOL said its members spent an estimated $37 million while shopping online on Dec. 17, setting a one-day record that dwarfed the $1 million shopping mark of a year earlier. (The company didn't say how much of that money ended up in its hands.) The following week, AOL set a deal with

Bell Atlantic

(BEL)

to deliver high-speed Internet access to people's homes, a major step in a stratgegy that the Street sees as crucial to AOL's long-term survival.

This week,

The Wall Street Journal

reported that

Netscape Communications

(NSCP)

co-founder

Marc Andreessen

would become AOL's chief technology officer once AOL closes its acquisition of the browser innovator. That news eased concerns about AOL's ability to retain Netscape brainpower. The topper was Tuesday's announcement that AOL now had 2 million members outside the U.S. and more than 3 million international users including

CompuServe

subscribers.

No wonder the stock has more than tripled in three months. AOL rose 9 yesterday to close at 155.

There's even another piece of good news for AOL that the company hasn't yet disclosed. The day after

@Home

(ATHM) - Get Report

said it would acquire

Excite

(XCIT)

, AOL sold more than 4.9 million Excite shares for nearly half a billion dollars, according to AOL spokeswoman Tricia Primrose. That half-billion is almost pure profit, since AOL valued that investment, along with some other holdings, at a cost basis of $32 million in an SEC filing last year.

A

First Call

survey of 31 analysts produced a consensus earnings estimate of 14 cents a share, up from a 5-cent profit in the corresponding quarter a year earlier. Though the range of predictions is tight, with analysts straying no more than a penny from the consensus, at least one analyst thinks everyone's in low-ball territory. "I'm anticipating

AOL is just going to blow the number out, to be quite frank," says Peggy Ledvina, vice president at

Dain Rauscher Wessels

. "I would anticipate they would do something similar to what

Yahoo!

(YHOO)

did" in beating its estimate by 5 cents.

Ledvina has pegged second-quarter revenue at $939.4 million, up from $592 million a year earlier. But she expects a number of factors to push revenue and earnings higher. These factors could include stronger domestic and international subscriber growth; traffic gains thanks in part to the buildup of the

ICQ

service; and rising e-commerce revenue. She rates the stock a "strong buy -- aggressive"; her firm has no underwriting relationship with the company.

What else will analysts be listening for in the subsequent conference call? More information about e-commerce and broadband, says Daniel King of

LaSalle St. Securities

. "America Online likes to point out they're the largest shopping site in the world," he says. "OK, that's great. Now how much money do you make off of that?" (In AOL's first quarter, $143 million, or 16.7% of total revenue, came from advertising, e-commerce or other fees unrelated to monthly subscription charges.) King, whose firm hasn't done underwriting for AOL, has a buy rating on the stock.

If there's any bad news, it is that AOL appears to have lost its cachet among the unspeakably rich. Last fall, in a development trumpeted with great fanfare, the Neiman Marcus department store included a pricey AOL-themed gift in its famously excessive annual Christmas catalog. There, alongside other gifts like the

Wizard of Oz

-themed children's bedroom ($150,000) and the full-sized working carousel ($300,000), you could buy your own personal AOL keyword, which would lead to your own personal area on AOL for a year. The keyword, was to be auctioned off at the starting price of $25,000, and the winner would be flown to Dallas to meet with a production team, and later to AOL headquarters in Dulles, Va., for an "AOL Keyword launch party."

So who won the spirited bidding for this gift?

No one. AOL spokeswoman Pam McGraw confirmed last night that no one bid on the one-of-a-kind gift. "We did get a lot of inquiries," she said. "But they wanted to use it for business purposes. And the package was really consumer."

If a grinch could steal AOL's Christmas, the unsold keyword would be it. But AOL, like Christmas, appears to be unstoppable.