Forecasts for AOL Revised Down on Ad Sales Slump
AOL Time Warner Inc. warned Monday that the outlook for its America Online unit is bleaker than it appeared just two months ago, blaming a lingering Internet advertising slump that continues to erode revenue.
The New York-based media giant stressed that the parent company’s overall projected revenue and cash-flow figures for 2002 have not changed.
But it said the Dulles, Va.-based Internet unit would earn less than it estimated in July.
“There’s been a continued softness in the advertising business,” AOL Time Warner spokesman Scott Miller said.
AOL Time Warner, whose stock price is down about 70% this year, said it expects the Internet unit to report 2002 advertising and commerce revenue of $1.6 billion to $1.7 billion and cash earnings before interest, taxes, depreciation and amortization, or EBITDA, of $1.7 billion to $1.8 billion.
Previously, the company said it expected America Online’s ad/commerce revenue and EBITDA to be between $1.8 billion and $2.2 billion.
“It’s never good when you have to lower your guidance two months after you set your guidance,” said Paul Kim, analyst at Kaufman Bros.
But Wall Street investors, who already have beaten down the stock after a string of bad news this summer, did not appear alarmed by the latest revision.
AOL Time Warner’s stock closed Monday at $13.33, up 20 cents, in New York Stock Exchange trading.
Analysts said the changes were no surprise, given the Internet unit’s recent lackluster performance.
“Expectations for the AOL segment were already low and little value was being allocated to the AOL business,” Merrill Lynch analyst Jessica Reif Cohen said in a research note Monday.
The firm kept its “neutral” rating on AOL Time Warner’s stock, which remains clouded by Justice Department and Securities and Exchange Commission probes into its accounting practices.
America Online admitted last month that it might have improperly accounted for three ad deals totaling $49 million. The company is conducting an internal review and has adopted a more conservative approach to accounting and advertising deals.
“The deals they struck in the dot-com heyday have been rolling off for the past year and will continue to roll off for another three or four quarters,” Kim said. He said the downward revision may reflect no new ad deals being struck to replace the old ones.
Jonathan Miller, the new chief executive of America Online, is expected to announce a restructuring this week that would disband the once-highflying business-affairs unit, which pushed for many of the ad deals under review.
Advertising and commerce revenue accounts for about 30% of the Internet unit’s total revenue, while Internet subscriptions account for about two-thirds.
Officials at the parent company said they continue to see strong operating earnings at AOL Time Warner’s other units.
They said other businesses would offset the declines at the online service, which accounts for about 23% of the parent company’s revenue.
AOL Time Warner expects 2002 revenue to increase at the low end of a 5% to 9% range, while EBITDA should grow 5% to 8%.
