January 28, 2003 12:27 PM PST

Analysts: No surprises from AOL

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Wall Street doesn't expect fireworks from AOL Time Warner on Wednesday, when the media giant reports financial earnings that are likely to show another disappointing quarter for its America Online unit.

In line with previous assessments, AOL Time Warner is expected to report a profit of 27 cents a share, excluding charges, on $11.2 billion in revenue in the fourth quarter, according to a consensus of analysts polled by First Call.

For the whole of 2002, analysts project earnings of 87 cents per share, excluding charges, on nearly $41 billion in revenue. If the company reaches that full-year revenue target, it will show improvement from the $38.2 billion reported for 2001.

One weak spot could be the AOL unit, which analysts anticipate will show a significant decline in its online advertising and e-commerce business. In December, the company said AOL's 2002 revenue will range between $8.8 billion and $9 billion, with advertising and commerce revenue between $1.5 billion and $1.6 billion.

Overall, revenue for AOL is expected to be flat, kept afloat by strong subscriber business.

However, the online division's advertising and commerce revenue will likely come in sharply lower than the $2.7 billion reported for 2001. AOL Time Warner said in December it expects that slice of revenue to drop by between 40 percent and 50 percent in 2003, leaving the division flat for the year.

The parent company's ongoing woes have been blamed on the slump in AOL's advertising and commerce businesses, as well as the unit's flat subscriber growth. Meanwhile, the merger between America Online and Time Warner, which closed two years ago, has been hampered by overoptimistic expectations, a cleanout of its top management and an investigation by the Securities and Exchange Commission into AOL's accounting.

AOL Time Warner has become a different company since its merger. Its top leadership has been ousted, capped by the resignation of Steve Case from the chairman post earlier this month and the subsequent ascent of former CEO Richard Parsons to the position three days later.

The performance of the AOL division continues to be at the top of Parsons' priorities list. In December, AOL Time Warner's top brass, lead by online division CEO Jonathan Miller, outlined a turnaround strategy for the unit that focused on fixing its advertising and commerce business, improving the flagship online service and reworking its broadband plans.

Meanwhile, Wall Street does expect AOL Time Warner to report strong earnings from its other businesses. Its film division will likely show strong growth from the blockbuster movies "Harry Potter and the Chamber of Secrets" and "The Lord of the Rings: The Two Towers." In addition, its Time Warner Cable unit is projected to show better earnings before interest, taxes, depreciation and amortization (EBITDA) growth from its high-speed Internet and digital cable services.


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