Financial: America Online, Inc. Reports Fiscal 1999 First Quarter Net Income, On a Fully Taxed Basis, of $68.0 Million or $0.26 Per Diluted Share - Company Financial Information

Edge: Work-Group Computing Report, Nov 2, 1998

America Online, Inc. (NYSE:AOL) Tuesday reported results for its fiscal first quarter ended September 30, 1998 that reflect strong across-the-board momentum in its operations with record net income, total revenues, and advertising and electronic commerce revenues, and dramatic growth in AOL membership.

The Company's net income totaled $68.0 million, or $0.26 per diluted share, on a fully taxed basis for the 1999 first quarter, a 255% increase over last year's first quarter fully taxed net income of $19.2 million, or $0.08 per diluted share. Because the Company's tax provision continues to be substantially offset by utilization of its net operating loss carryforward, reported net income for the quarter totaled $108.4 million, or $0.39 per share on a diluted basis, as compared with $31.7 million, or $0.13 per share on the same basis in the prior year's first quarter. Total revenues increased by 65% over fiscal 1998's first quarter to $858.1 million. Advertising, commerce and other revenues reached a record $143.4 million, up 64% over last year's corresponding quarter. The AOL service's membership growth accelerated during the quarter, with 951,000 net new members -- making it the Company's best first quarter ever and bringing total worldwide membership of the world's leading Internet service to 13.5 million on September 30. Over the past year, AOL has added 4 million new members. During the quarter, the Company launched the final version of its next-generation software, AOL 4.0 for Windows, with its increased ease-of-use, convenience and reliability. Steve Case, Chairman and Chief Executive Officer, said: "We are very pleased with this quarter's results, which convincingly demonstrate the continuing momentum in our operations, the success of our business strategies, and the strength of our earnings model. We are particularly pleased to report that AOL membership grew at a record first-quarter pace, and that advertising and commerce revenues reached a new high." Bob Pittman, President and Chief Operating Officer, said: "Our performance this quarter underscores the power of our multiple revenue streams, multiple brands, and shared infrastructure. The launch of AOL 4.0 -- with its ease-of-use, convenience, and reliability -- has been an unqualified success, and it now accounts for 57% of member sessions. We also are making great progress with our brands for consumer audiences not traditionally served by the AOL product." Other operating highlights from the quarter include: o Online Service Revenues: Revenues from subscriptions climbed to $714.7 million, a 65% increase over last year's first quarter, primarily reflecting higher membership. o Advertising & Electronic Commerce Revenues: Revenues from advertising and electronic commerce climbed 133% to $102.8 million, compared to $44.1 million during fiscal 1998's corresponding quarter. o Advertising & Electronic Commerce Backlog: AOL increased its backlog of advertising and electronic commerce contract revenues from $510.5 million on June 30 to $597.5 million on September 30. o Cash Flow from Operations: The Company's cash flow from operations increased over last year's first quarter by 65% to $135.0 million, and, on September 30, 1998, it had cash and cash equivalents of $1.25 billion, up from $178.6 million on September 30, 1997. o Operating Margins: Operating margins improved to 13.1%, their highest level in AOL's history, from 5.0% during last year's corresponding quarter. o Marketing Expenses: Marketing expenses amounted to 12.2% of revenues, compared to 18.7% of revenues in fiscal 1998's first quarter. o AOL Member Usage: Members averaged approximately 47 minutes per day on the service, up from about 40 minutes during fiscal 1998's first quarter. o AOL Simultaneous Users: The AOL service's simultaneous usage during peak periods climbed to 789,000, compared to 462,000 during last year's first quarter. At the end of the quarter, AOL provided its members with 875,000 modems, up 44% from the year ago total. AOL Service Highlights The Company launched a major marketing campaign around its AOL 4.0 software in late September. AOL is distributing millions of CD-ROMs this fall by targeted mail and other innovative methods, supported by a multi-million-dollar brand-building advertising campaign. The new software includes RealPlayer's streaming media technology. The Company reported that member response to AOL 4.0 has been overwhelmingly positive, and the new software is responsible for a dramatic reduction in the rate of technical support calls to Member Services compared to AOL 3.0. During the quarter, AOL deployed the standard V.90 modem protocol for high-speed 56 Kbps access in all cities covered by AOLnet, the world's largest dial-up network. The AOL service introduced a number of major content initiatives during the quarter aimed at further improving the member experience, such as its new Women's Channel and expanded relationship with Time Inc. New Media. Drawing from Oxygen Media, a new company founded by Geraldine Laybourne, iVillage, and other key partnerships, the Women's Channel provides a full range of useful resources, unique content and commerce to help women -- who make up 51% of AOL users -- manage their increasingly busy lives. AOL and Time Inc. New Media, the digital publisher of market-leading information brands, expanded their strategic online alliance that will make the online edition of People Magazine available exclusively on AOL, and Time.com, Entertainment Weekly Online, ParentTime, and Money.com will become more easily accessible, via anchor tenancies, to the service's millions of members. In addition, Time Inc. New Media will offer content and customized information from the online editions of Money and Fortune for CompuServe's Personal Finance and Business Channels. Highlights from Advertising & Commerce Mr. Pittman said: "We are seeing very strong momentum in our advertising and commerce agreements. We believe this growth signals that both mainstream marketers and Internet retailers are increasingly recognizing the power of this new medium and that AOL's industry-leading brands are the best way to reach consumers online. Importantly, many of these agreements extend beyond the AOL service to CompuServe, AOL.COM, Digital City, and AOL International." Among the other recent advertising and commerce agreements are: o CBS SportsLine: The three-year, guaranteed $23-million agreement with CBS SportsLine underscores the growing trend among partners to expand their relationships beyond the AOL service to the Company's other brands, including AOL.COM, Digital City, CompuServe, and AOL International's services. A key element of this content and commerce pact is to give AOL prominent promotion on CBS Sports broadcasts. o eBay: In another expanded agreement renewal, eBay, the leading person-to-person online trading community, signed a $12-million, three-year pact to make it easier than ever for AOL members to buy and sell merchandise from one another online. o DVD EXPRESS: A leading online DVD superstore, DVD EXPRESS signed a $15-million, multi-year pact to receive premier positioning on the AOL and CompuServe services, AOL.COM, and Digital City to provide members and other consumers a fast and convenient way to choose from over 1600 movie titles in dozens of categories, and then have their new DVDs mailed to their home. o "AOL/CBS Tune In!" Campaign: In a first-of-its-kind agreement, AOL last month promoted CBS's premiere week for nine days on many of its most highly trafficked areas and offered members the opportunity to interact directly with some of the biggest CBS Television personalities through AOL Live events. AOL International Highlights On October 7, AOL and its partner, Bertelsmann AG, the world's third largest media company, launched AOL in Australia. This is the ninth country outside of the United States where AOL offers a localized service. AOL in Australia, the first service to be launched with AOL 4.0, features exclusive local content in a service with a uniquely Australian look and feel. Its members will have complete access to other original content available on all of AOL's international services. The Company also reported that new net membership of AOL International, which oversees both the AOL and CompuServe brands outside of the United States, climbed by approximately 140,000 during the quarter, almost double the increase during last year's first quarter. Today, AOL International's membership exceeds 2.6 million. Highlights from CompuServe, ICQ, Digital City and AOL.COM During the quarter, the Company extended its audience reach through the continued development of a number of interactive brands, including: CompuServe, ICQ, Digital City and AOL.COM. Mr. Pittman said: "CompuServe is stabilizing its membership base, and continuing to develop its advertising and commerce revenues, and its member experience will take a major leap forward with the introduction of our new software early next year." The Company also announced Tuesday that registrations for ICQ, a free Internet-based instant communication and chat technology, have surpassed 20