AOL Time Warner Posts Lower-Than-Expected Q2 Revenues

19 July 2001

Despite narrowing its year-on-year net loss, AOL Time Warner posted second-quarter revenue below analysts’ expectations.

Revenues totalled $9.2 billion, below forecasts of $9.74bn, while the net loss stood at $734 million, down from a pro forma $924m last year. The results may jeopardise the media mammoth’s ambitious full-year targets of 12%–15% revenue growth (to $40bn) and a 30% rise in EBITDA (earnings before interest, taxes, depreciation and amortization) to $11bn.

“We are assuming only a slight upturn in advertising,” cautioned chief financial officer Mike Kelly. “With that perspective, we’re looking at the $40 billion being on the top of our range and still looking at targeting $11 billion in EBITDA.” Although the figures remain the same, some analysts noted a distinct change in tone from previous, more confident assertions that targets would be met.

Underlying the slowing growth in revenues is the advertising industry downturn – ad income for the quarter stood at $2.28bn, well below the forecast $2.51bn. Moreover, the outlook remains gloomy – “We clearly don’t yet see an upturn,” said Kelly.

However, not all the group’s divisions reported tales of advertising woe – at the cable systems division, ad revenue soared 19% to $142m, spurring 14% revenue growth at the unit to $1.71bn.

In the absence of overall revenue growth, AOL TW is increasingly willing to turn to cost-cutting to secure its targets – chief executive Gerald Levin declared he is “making cost management a permanent way of life” and did not rule out future layoffs.

For example, AOL TW’s cable networks suffered an 8% drop in ad and commerce revenue to $679m, while total revenue rose only 2% to $183m. However, EBITDA rose 18% to $444m due to job cuts, consolidation and the hit show The Sopranos. Similarly, the publishing division saw revenues fall 1% but managed an EBITDA rise of 21%.

At the online unit, advertising brought in only $706m, down on Q1’s $721m and below estimates of $774m, though increasing membership of America Online drove a 13% rise in total revenue to $2.14bn. EBITDA at the internet division jumped 37% to $801m, following staff cuts, reduced marketing spend and cheaper network access.

The film and music units both performed weakly. Music saw an 11% fall in revenue and a 33% drop in EBITDA, while film reported 5% revenue growth and a 17% increase in EBITDA. Both units are expected to have a better second half.

News source: Wall Street Journal