CompuServe Posts Loss of $14.2 Million for Quarter
CompuServe Corp., once the largest online service, announced a fiscal third-quarter loss of $14.2 million on Thursday and said it has abandoned the consumer market to focus on the business and professional customers that accounted for its initial success.
The 15-cents-a-share loss for the three months ended Jan. 31 is slightly less than analysts had expected. Quarterly revenue dropped to about $211 million from $214 million the previous quarter as CompuServe shut down its mass market-oriented WOW service, which had 102,000 members. For the comparable quarter last year, the company earned $9,398 on revenue of $203 million.
“For a number of years, CompuServe enjoyed rapid growth with limited competition, but that world has changed and we must change with it,” said Frank Salizzoni, chairman and acting chief executive of Columbus, Ohio-based CompuServe.
Indeed, rivals such as America Online and Microsoft Network have spent furiously to gain mainstream subscribers as overall membership numbers for CompuServe’s flagship CSi service have continued to fall. Rather than try to match the mass-marketing efforts of AOL and MSN, CompuServe decided in late November to target a more narrow segment of the online community.
Since then, the company has seen monthly revenue per subscriber rise from $15.06 to $15.22, and operating profit hit $9.4 million, the first positive showing in five quarters. Analysts say those are early signs that the new strategy will ultimately pay off.
They are also hopeful that a successor to former President and Chief Executive Robert Massey, who unexpectedly quit on Monday, will reinvigorate the company.
“There is a big opportunity in the business market to serve those people with value-added services, and CompuServe is very well-positioned to deliver on that,” said Marc Usem, a research analyst with Salomon Bros. in New York.
CompuServe has held onto nearly 3.2 million customers for CSi and the Sprynet Internet access service, but subscriptions to the online service are falling.
Six months ago, that would have caused Abhishek Gami, vice president of Internet services with Nesbitt Burns in Chicago, to conclude that the company was doomed. But the online market has matured to the point where CompuServe could profit by serving a niche, he said.
“Now that they’ve clearly defined their market once and for all, they can spend less money and grow more slowly but still make enough money to provide investors with a good return on investment,” Gami said.
High subscription numbers have not guaranteed profit. Two weeks ago, Dulles, Va.-based America Online reported a quarterly loss of $154.8 million despite a 64% rise in revenue and 8 million subscribers.
Massey’s surprise resignation had some observers bracing for bad news on the earnings front, even though the company insisted that the timing was a coincidence. But on Thursday, analysts saw his departure as more of an opportunity than a liability.
“This gives them a chance to bring in somebody with a strong marketing background who can add excitement to what these guys can do in the business market,” Usem said.
Investors seemed mildly heartened. CompuServe’s stock rose 25 cents on Thursday to close at $10.75 in Nasdaq trading.
That is less than one-third the price CompuServe shares fetched shortly after going public in April 1996 at $30 a share. Former parent H&R; Block Inc. still owns 80% of CompuServe’s stock, and analysts expect the tax preparation company to hold onto it until CompuServe returns to profitability.
Due in part to its investment in CompuServe, H&R; Block on Thursday reported a quarterly loss of $25.3 million on record revenue of $363.1 million. Its stock fell 37.5 cents to close at $29.75 a share on the New York Stock Exchange.
