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operating income has jumped following successive staff cuts that last year showed some 500 employees the door, including 450 just weeks before the holiday season.
Despite losing millions of subscribers in the United States, AOL is on track to earn close to $1.9 billion in operating income before interest, taxes, depreciation and amortization (OIBITDA), an industry benchmark of profitability.
AOL's tenacious earnings power has for now largely squelched talk of a possible spinoff or sale of the division. Suitors have approached Time Warner to propose acquiring AOL, according to sources close to the company, but the media giant has not budged, opting instead to give AOL a chance to turn itself around.
Cost-cutting is a big part of the equation. In addition to laying off workers, the company has pared back network costs significantly, boosting margins. That could offer a silver lining for the company even as it loses its core base of dial-up customers--a trend that many believe is unstoppable.
Counterintuitively, AOL's subscriber revenue has climbed even as the total number of its U.S. dial-up subscribers plunged from 26.4 million in the third quarter of 2002 to 22.4 million in the same period this year. AOL says that many of the millions of people leaving the service weren't paying for it anyway, thanks to aggressive giveaway programs, since curtailed, that had aimed to fuel subscriber growth. In addition, losses in the United States have been offset by gains in Europe.
To address subscriber defections, AOL introduced a $9.95 plan for those leaving for discount ISPs such as NetZero. AOL also has begun offering a $14.95 a month "bring your own access" plan aimed at broadband users featuring video, music and other exclusive content. The company says 1.8 million people have signed up for the service, but analysts said the jury is still out on its success.
"If we continue to see broadband subscriber additions offsetting the majority of dial-up losses, then I think AOL will be fine," said American Technology Research's Sanderson. "But if we see broadband subscribers really drop next year, then we will be more concerned."
Will online advertising be enough?
AOL's online advertising performance shows some glimmer of hope. Despite watching ad revenue fall from $1.3 billion in 2002 to $787 million in 2003, AOL has witnessed growth in the business over the past three quarters. At its current rate, AOL is on track to generate more than $900 million in ad revenue this year.
Commercial search has become a lifeboat for the company, much as it did for Yahoo three years ago, when receding online advertising dollars nearly toppled the company. AOL has a deal to host paid search links supplied by Google; the search giant pays AOL a fee every time someone clicks on a sponsored link. That arrangement has fueled most of AOL's advertising growth, supplying revenue averaging around $75 million a quarter this year.
It's unclear whether AOL's advertising gains will be enough to offset the impact of its subscriber declines, however.
Next week's layoffs are expected to be nearly double those announced last year, and further pink slips may be necessary to maintain AOL's strong cash generation. The division has promised double-digit yearly OIBITDA growth to Wall Street, which would mean more blood if it fails to capture advertising dollars.
Paul Kim, an equity analyst at Tradition-Asiel Securities, said AOL is adept at trimming costs to maintain profit.
"They are relatively confident that in the next one to three years, they have such control of their cost structure that if revenue goes down, they can (still) hit double-digit growth," he said.
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America Online Inc., layoff, online advertising, Time Warner Inc., worker
Once they are gone, then MS fanboys can be banned, although I suspect that most MS fans are AOL users. :)
I tried AOL way back in 1998 and, upon installation, I was greeted with exactly this:
"Welcome! You've got-You've got-You've got-Goodbye!"
At which point the program crashed to desktop. Between that, the dummied-down internet experience, a clunky interface, the infamous inactivity timer, and the fact that my brother and I couldn't play EverQuest with it (the program counted that as inactivity, apparently), my family mutually decided to give AOL the boot.
Once they are gone, then MS fanboys can be banned, although I suspect that most MS fans are AOL users. :)
I tried AOL way back in 1998 and, upon installation, I was greeted with exactly this:
"Welcome! You've got-You've got-You've got-Goodbye!"
At which point the program crashed to desktop. Between that, the dummied-down internet experience, a clunky interface, the infamous inactivity timer, and the fact that my brother and I couldn't play EverQuest with it (the program counted that as inactivity, apparently), my family mutually decided to give AOL the boot.
http://www.nomoreaolcds.com/
http://www.nomoreaolcds.com/
- Will AOL improve customer relations?
- by alduns December 28, 2006 8:55 PM PST
- Either 22 million subscribers are pleased with their service or 4 million subscribers discovered the secret procedure to cancel? Wow... 4 million in four years. That's about 2 customers every minute, 365 days a year. hmmmm...
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