AOL Q3
Earnings Press Release
America Online Reports FY97 Q3 Net Income of $2.6 Million
Revenues Up 46% Over Previous Year to Record $456.2 Million
Non-Subscription Revenues Nearly Triple to $74.7 Million
DULLES, VA, May 5, 1997 -- America Online, Inc. today reported net
income of $2.6 million, or $0.02 per share, for the three months ended March
31, 1997, the first full quarter since the Company's introduction of flat-rate
pricing.
Third quarter revenues climbed 46 percent over the previous year to a record
$456.2 million, with revenues from sources other than subscriptions nearly
tripling to $74.7 million. Advertising and electronic commerce revenues climbed
37 percent from the December quarter to $60.7 million while, a year ago,
they were approximately $15 million.
In October 1996, the Company significantly changed its business model, announcing
unlimited use of AOL for a $19.95 monthly fee, and also discontinued its
practice of amortizing subscriber acquisition costs over 24 months to begin
expensing them as incurred. In the prior year period, which included
approximately $88.2 million in net deferred subscriber acquisition costs,
the Company reported net income of $15.1 million, or $0.14 per share, on
revenues of $312.3 million. Despite incurring a variety of unusual costs
related to the introduction of flat-rate pricing, the Company earned a profit
in the latest quarter primarily through lower marketing expenses.
As the Company announced last January, it held membership relatively flat
during the quarter, ending at 8,036,000 subscribers, while it worked to improve
access for its existing members through accelerated network expansion. The
Company said it had recently resumed marketing on a limited basis and plans
to continue carefully balancing demand for the service with its ability to
keep improving access.
Steve Case, Chairman and CEO, said: "We've made good progress in laying a
solid foundation for sustained profitability based on our new business model
of multiple revenue streams. We are also pleased to have rapidly expanded
our network to meet the extraordinary level of demand for AOL. As promised,
we have worked around the clock to serve our existing members first and our
top priority was, and still is, improving access. At the same time, we have
achieved profitability a bit ahead of schedule."
Mr. Case added, "Starting this summer, AOL will take a quantum leap forward
with the roll-out of AOL 4.0 -- our next-generation software. AOL 4.0 will
enrich our members' interactive experiences and reinforce our position as
the industry pacesetter and value leader. We anticipate continued strong
mass market demand for AOL and have an aggressive plan to keep building out
and upgrading our system."
With its introduction of flat-rate pricing plans, the Company reported that
members' usage of the service soared during the quarter to an average of
124 million hours per month, compared to an average of 52 million hours monthly
just before the conversion. More than 80 percent of its members are now on
the standard $19.95 flat-rate plan, with others using plans priced as low
as $4.95 for the first three hours.
America Online said that member cancellations, as expected, increased in
January because of the change to flat-rate pricing and access issues.
Importantly, member retention improved steadily as the quarter progressed,
with both trial member conversions and retention rates for April hitting
their highest levels in the past year.
AOL's cash position improved to $197.8 million at March 31, 1997 from $130.2
million at December 31, 1996. As of March 31, the Company also had $211.2
million in deferred revenue, up $115.8 million from $95.4 million three months
earlier, primarily reflecting advance subscription payments and its marketing
agreement with Tel-Save Holdings, Inc. One year ago, the Company reported
$33.5 million in deferred revenue.
The Company's current $350 million system expansion program, combined with
its increased use of alternative networks, has resulted in a substantial
increase in capacity during the first three months of calendar 1997. During
this time, America Online:
* Installed more than 75,000 new modems in AOLnet and leased additional prime
time capacity from outside suppliers and boosted support for the
"bring-your-own-access" option;
* Increased the number of daily sessions by 3 million in the quarter to more
than 12 million;
* Expanded system capacity to handle more than 335,000 simultaneous users
-- an increase of 85,000;
* Increased its e-mail capability to handle up to 13 million pieces of mail
daily -- to approximately 25 million recipients -- making it the largest
commercial e-mail system in the world;
* Boosted capacity to serve Web pages, now totaling more than 300 million
Web hits daily;
* Started construction of its third data center, a 180,000 square-foot facility
due to open in Fall 1997, that will double the Company's host/server system
capacity.
AOL NETWORKS
Bob Pittman, President and CEO of AOL Networks, said: "A key ingredient in
AOL's success is its ease-of-use and convenience. With our introduction of
AOL 4.0 and other exciting products like AOL Driveway, our 'broadcast' product,
and Personal Publisher 3, an incredibly easy way for anyone to create a web
page, we will be making the Internet more accessible and engaging than ever
for the mass market."
Mr. Pittman added: "Advertisers, marketers and independent content providers
are increasingly recognizing the power of the AOL community. During the past
quarter, we significantly enhanced our programming through agreements with
leading news and entertainment providers like ABC News, the New York Times,
and Hachette-Filipacchi magazines, as well as leading retailers like Barnes
& Noble. And, starting this fall, our agreement with Tel-Save will give
AOL members the opportunity to get long-distance telephone service with unmatched
price and convenience. We also extended our global reach through continued
expansion in Europe and Canada and the April launch of AOL Japan."
Starting this summer, AOL Networks said it would introduce AOL 4.0 -- the
service's next-generation software -- which will deliver a wide array of
new features, advanced technologies and exciting enhancements that will make
exploring AOL and the Internet faster and more interactive. Among its highlights
are:
* Engaging new multi-media technology that will make AOL content come alive
with rich animation, sound and streaming pictures plus new magazine-style
layouts for online articles;
* Enhanced messaging, including pictures embedded in e-mail and instant messages
and rich text support for chat rooms;
* Easier navigation and ease-of-use improvements like the same combined tool
bar for both AOL and the Web and the ability to switch screennames on the
fly.
During this quarter, Networks concluded a number of key partnership and
programming agreements including:
* Its advertising and marketing agreement with Tel-Save Holdings to offer
competitively priced long-distance service to AOL members under which the
Company will share no less than equally in profits generated from providing
the new service to its members. AOL will also receive up to 12 million Tel-Save
warrants based on the ultimate response rate, and has been paid $100 million
as a non-refundable advance against future revenues and various deliverables;
* Barnes & Noble became the exclusive bookseller in AOL's Marketplace,
offering its more than 1 million titles to AOL members at discounts of 20
to 30 percent;
* AOL and ABC News dramatically expanded their relationship with AOL members
now having access to a customized version of the new ABC News.com, which
will provide up-to-the-minute news from the world's leading broadcast news
network;
* AOL also broadened its relationships with leading partners including The
New York Times -- extending AOL's exclusive rights to a range of content,
including original programming, and solidifying The New York Times as AOL's
premier newspaper service -- along with Hachette-Filipacchi, which expanded
its relationship to provide original online programming with a variety of
America's most popular magazines, including George, ELLE, Premiere, and Car
& Driver.
During the last quarter, AOL's content led all categories in growth. Among
the leading gainers in content usage were the Personal Finance and Games
channels, while total Internet usage remained relatively constant at 20 percent
of hours, and e-mail volume increased from 7.5 million to 13 million pieces
daily.
Despite it being a seasonally slow period for advertising, AOL signed 27
new advertisers including Barnes & Noble, American Greetings and TRW,
bringing to more than 180 its roster of clients, some 80 percent of whose
advertising is focused exclusively on providing consumer products and services
as opposed to technology.
The Company also made significant strides in expanding AOL globally with
the April 15 launch of AOL Japan, a state-of-the-art service with a superior
user interface, engaging content and a pricing structure significantly below
that of current Japanese competitors. The Company passed 500,000 members
in Europe, just 16 months after launching the service.
AOL STUDIOS
Ted Leonsis, President and CEO of AOL Studios, said: "AOL Studios continues
to make progress toward its goal of being the leading Internet content
programmer. As owner or partner in more than 35 separate titles and businesses,
we are building enduring businesses that are redefining the nature and scope
of online and Internet content."
Greenhouse Networks
During the last quarter, Greenhouse Networks continued to develop its strategy
of building consumer brands for entertainment, sports, romance and women
on AOL, the Internet and on other Web delivery platforms by acquiring LightSpeed
Media of Culver City, CA, which will become the cornerstone of Greenhouse's
new Entertainment network launching later this year. In addition, former
NBC Programming Chief Brandon Tartikoff was appointed chairman of the new
Entertainment network. Greenhouse also announced plans to license Firefly
Network, Inc.'s profile management and advanced collaborative filtering
technologies for its new consumer networks. Firefly's technology will enable
Greenhouse brands to create powerful relationships with their customers and
build communities by personalizing content, products and sites based on
individual preferences.
Digital City, Inc.
The Digital City network, which currently consists of 14 online interactive
cities including eight of the country's top 10 markets, made significant
strides during the quarter to reinforce its position as the nation's leading
provider of local interactive content and services. Digital City has recently
entered into partnerships with technology and directory industry leaders
such as Switchboard, Electric Classifieds, Accipiter, and R.H. Donnelley,
as well as a strategic content relationship with Star Tribune Online in
Minneapolis. Digital City and clothing giant The Gap recently signed an
advertising agreement to introduce first-ever online fragrance "sampling."
ImagiNation Network, Inc.
ImagiNation Network Inc., a leading online games and entertainment company,
has just acquired exclusive global rights to the first online multiplayer
version of Tetris, the most popular electronic game in the world with more
than 40 million copies sold. The multiplayer version of Tetris will be available
to millions of online enthusiasts through ImagiNation's distribution partnerships
with AOL and leading Internet service providers. ImagiNation Network also
has acquired exclusive rights to the first online version of SET, an interactive,
action puzzle game for all ages, which will be offered online later this
year.
In addition, ImagiNation Network has entered into agreements with AOL Networks
and Microsoft Corporation to bring online gaming to millions of users by
enhancing games development. ImagiNation will support DirectPlay technology
and games, and Microsoft Corp. will distribute unique elements of ImagiNation's
software development kit (SDK) as part of Microsoft's DirectX' 5.0 SDK.
ANS COMMUNICATIONS
"ANS is continuing to implement its plan to become a major worldwide provider
of mission-critical, Internet-based managed network services," said Bruce
Bond, ANS President and CEO. "Through the successful introduction of new
services, the development of domestic and international alliances with other
industry leaders, and the expansion of our executive management team, we
are strengthening our reputation as a partner of choice in this market."
Highlights for the quarter include the announcement of a partnership with
Bertelsmann AG, the world's second largest media company, to establish joint
ventures throughout Europe for managed multimedia network services to the
Global 1000. This is an extension of an already strong partnership between
AOL and Bertelsmann, which began in March 1995 with the establishment of
AOL Europe, a joint venture for which ANS provides the network infrastructure.
Expanding on its strategy to provide complete solutions to its customers,
ANS announced alliances with Hewlett-Packard Company and Connect, Inc. to
provide Web-hosting services for high-end, turnkey electronic commerce offerings.
Also introduced was the new ANS SecureConnect Service, which addresses the
critical business need for cost-effective, managed and secure Internet access
by combining a dedicated T1 connection with the National Computer Security
Association (NCSA)-certified ANS InterLock Security Service at a very competitive
price.
Additionally, ANS has appointed Allen T. Preece to the position of Chief
Financial Officer. Mr. Preece joined ANS from Northern Telecom, where he
most recently served as Vice President and Treasurer for the multi-billion
dollar global telecommunications company.
America Online, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, based in Dulles, Virginia, is the world's
leading Internet online service, with approximately 8 million members worldwide.
AOL, founded in 1985, offers its subscribers a wide variety of services including
electronic mail, conferencing, software, computing support, interactive magazines
and newspapers and online classes, as well as easy access to services of
the Internet. Personal computer owners can obtain America Online software
at major retailers and bookstores, by calling 800/827-6364, or by downloading
from http.//www.aol.com.
This release contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Such statements are based on management's current expectations or
beliefs and are subject to a number of factors and uncertainties which could
cause actual results to differ materially from those described in the
forward-looking statements. In particular, careful consideration should be
given to cautionary statements made in the Company's reports filed with the
Securities and Exchange Commission. |