Encore! Encore! Another Split for AOL

Plus, Internet stocks keep gaining even as other slip.
Author:
Publish date:

On the heels of strong earnings from eBay (EBAY) - Get Report and Amazon.com (AMZN) - Get Report, was there much that America Online (AOL) could do for an encore?

Well, the company reported earnings today that exceeded expectations. Not a huge

surprise, but still positive news. AOL reported earnings of 17 cents a share for its second quarter, above the 14-cent-a-share estimate from analysts polled by

First Call

. Revenue rose 62% from the same quarter last year to a record $960 million.

The online service also followed the pattern of other Internet companies this quarter by announcing a stock split in the wake of its earnings report. AOL's 2-for-1 stock split, effective Feb. 22, will mark the sixth time the company has split its stock since November 1994 and the second time in three months (the last split took place in November 1998). This split will leave AOL with about 933 million shares outstanding, the company said.

AOL closed up 7 at 162. In after-hours trading, the stock traded as high as 166 1/2, according to

Mr. Stock

.

The Party Rages On

Other Internet stocks defied declines in market indices. The

TSC Internet Index

rose 3% to 534.60, while the

Nasdaq Composite Index

fell 1% to 2407.14. eBay maintained its gains throughout the day and closed 83 1/2 higher at 303 1/2, not far from its session high of 314. The same could not be said for

Yahoo!

(YHOO)

, which after hitting a high of 381 3/16 in early trading followed the rest of the market lower, closing down 16 5/8 at 334 1/2. Amazon.com added 10 5/8 at 125 5/8 after reaching a high of 139 3/4 in the first 10 minutes of trading.

"The resurgence we're seeing here -- it's kind of like what Alan Greenspan said, 'irrational exuberance,' but it's irrepressible enthusiasm," said Phil Leigh, analyst with

Raymond James

.

Leigh emphasized that eBay, Amazon.com and

Broadcom

(BRCM)

, which closed up 17 5/16 at 145 after reporting strong earnings and a stock split, share a common trait as industry leaders.

"The message is, if you establish a unique position on the Net, you're going to do better than expectations," said Leigh. "But you must demonstrate that you have a significant leadership role to play."

Leigh said over the next year, he expects the focus to be on "separating the leaders from the pretenders," and the winners will be the companies that are the "best connected and best supported."

The victors also will be those that focus on the long term to build customer bases, even at the expense of near-term profits. It's a strategy, he said, employed by AOL and that others such as Amazon are trying to emulate.

"Look at where AOL has come from. Until a year ago they were harshly criticized for not being profitable. They also had customer service problems. They had a lot of black eyes," he said. "But they continued to focus on the goal of long-term positioning for leadership to become the

Coke

(KO) - Get Report

or

Pepsi

(PEP) - Get Report

of the marketplace. The focus should be on the finish line and not to be distracted by near-term profitability."

Of course, there could be unforeseen problems and roadblocks for companies to reach these goals. Leigh mentions

Buy.com

as a company that is price-competitive with Amazon and is well-supported. Buy.com could "take some of the bloom off the rose of Amazon.com, but not take away their leadership," he says.