EarthLink Narrows Loss, Raises Forecast for Year

Internet service provider EarthLink Inc. reported a much narrower first-quarter loss Tuesday and raised its profit forecast for the full year as the company benefited from reduced telecommunications expenses and outsourcing of customer-service work.

The Atlanta-based company added 98,000 broadband subscribers in the first three months of the year and managed to keep its number of dial-up customers unchanged despite reduced demand industrywide for the slower connections. It ended the quarter with 5.3 million subscribers.

EarthLink reported a net loss of $11.8 million, or 7 cents a share, down from $65.7 million, or 43 cents, a year earlier. Revenue fell to $351.6 million from $353.7 million, in part because it stopped selling computers that access the Internet.

The results far surpassed the expectations of Wall Street analysts. The company reported its financial results before markets opened, and its shares rose as much as 22% in Nasdaq trading before some investors cashed in. The stock closed up 40 cents, or 4%, to $9.49.

The loss stemmed from a restructuring announced in January in which EarthLink said it would close four customer call centers and reduce its head count by 1,300, or 40% of its workforce. Excluding those one-time costs, which amounted to $30.2 million, the company earned $18.4 million, or 11 cents a share, contrasted with a loss of $29.1 million, or 19 cents, during the same period last year.

“They’re doing a very good job of clearing costs in the context of modest revenue growth,” said Ned Zachar, an analyst at Thomas Weisel Partners in New York.

EarthLink also started to benefit from a partnership with Google Inc., whose technology powers targeted ads beside Internet searches on many EarthLink websites.

EarthLink now expects to report a profit of $54 million to $80 million for the year. That’s a sharp improvement from January, when the company said it expected 2004 income of no more than $39 million. EarthLink maintained its sales forecast of $1.41 billion to $1.44 billion.

Scott Kessler, an Internet equity analyst with Standard & Poor’s Corp., noted that EarthLink was winning subscribers over cable and digital subscriber lines, as well as experimenting in voice over Internet protocol and in Internet access over power lines.

“They’re using their brand and reputation to gain customers in a variety of different venues,” he said. “That’s ultimately aided them in their battle for subscriber dollars.”

Bloomberg News was used in compiling this report.