Crystal-Gazer Sends AOL TW Stock Plunging

06 June 2002

The continuing influence of overpaid and often inaccurate Wall Street prognosticators never ceases to astonish.

The latest outbreak of high profile entrail-raking comes from Holly Becker, an analyst with Lehman Brothers, whose future ad revenue guesstimate prompted her to downgrade AOL Time Warner’s 2002 profit forecast. Her prescience immediately triggered a 4.9% slide in the group’s stock price.

On Tuesday Becker issued a research note in which she slimmed her earlier 2002 ad revenue estimate for the media giant’s AOL division, reducing this from $1.94 billion (€2.07bn; £1.33bn) to $1.79bn - although leaving unchanged her estimate of AOL’s second-quarter ad revenue.

Becker envisages no improvement in the online sector in the immediate future, so she also downgraded her 2003 ad revenue estimates for AOL from minus 7.5% to minus 10% – a move that prompted one pernickety media executive to observe that this equated to a judgemental error on Becker’s part of thirty-three percent.

AOL in its entirety will see revenues decline from $42 billion to $9.6 billion this year, says the amended Becker forecast, noting that only two of the nation’s top ten advertisers in 2001 were numbered among’s top 100 ad customers – one being the Ford Motor Company, the other AOL TW itself – an interesting if irrelevant statistic given the mass market nature of the former table and the targeted ambience of the latter.

But new AOL TW ceo Richard Parsons should not leap yet from his top floor executive suite – there is hope on the horizon, says Becker.

“Once AOL works through its [long-term, low-income ad] legacy deals, establishes a new core base of advertisers, and accepts that the economics of online advertising will likely be less fruitful going forward, we believe the business will be poised for growth,” she opines.

[sourced from: The Wall Street Journal Online, Thursday, 06-Jun-02]

Despite Becker’s augury that AOL Time Warner’s AOL division will see a fall in its 2002 advertising and commerce revenues, the media group is standing by its income forecast of between $1.8 billion to $2.2 billion.

Chief financial officer Wayne Pace also refuted Becker’s prognostications for 2003 which, he says, will be above this year’s level. “The thought is, there will be a market rebound in advertising, and the online segment will benefit later than TV or publishing,” he said.

Pace also reiterated the company's financial targets for the second quarter and 2002 as a whole. He expects second-quarter revenue growth rate in the mid-single digits compared with a year ago, and flat EBITDA (earnings before interest, tax depreciation and amortization).

Thereafter he projects revenue gains between 5% to 8%, and EBITDA increases of 5% to 9%. Beyond 2002, EBITDA growth rate is anticipated between “the low teens to the high teens”.

Data sourced from: The Wall Street Journal Online; additional content by WARC staff