AOL TW Reduces Earnings Expectations

25 September 2001

Citing the recent devastation in the US and the advertising downturn, AOL Time Warner has warned its full-year results will fall below previous targets.

The media mammoth now expects an increase in revenue of 5%–7% for 2001, less than half the 12%–15% (to $40 billion) goal set when America Online merged with Time Warner last year. EBITDA (earnings before interest, taxes, depreciation and amortization) growth targets have been reduced from 30% to 20%.

Like many media groups, AOL TW lost ad revenue as its broadcast properties covered the attacks round the clock, incurring higher news production costs in the process. Around one-quarter of the group’s revenues comes from advertising, though this is less than rivals such as Viacom.

“No financial impact can compare to the terrible suffering and loss of life inflicted by the vicious attacks of September 11,” commented chief executive Gerald Levin. “Our businesses … will keep fulfilling our mission, whatever the circumstances and with whatever resources are necessary.”

The reduction of 2001 estimates came as no shock to analysts – AOL TW had been suffering a downturn in advertising before the events of September 11, and in July shifted its stance slightly by admitting its $40bn revenue target was at “the top of our range” [WAMN: 19-Jul-01].

However, more surprising was the apparent lowering of estimates for 2002. Having previously forecast next year’s EBITDA growth at 25%, the media titan is now predicting only that it will be in the “double digits”. When asked, AOL TW declined to be less vague.

News source: Wall Street Journal