July 25, 2002, 9:12 AM — AOL Time Warner Inc. (AOLTW) reported a profit for its second-quarter results Wednesday, as the company's film and cable businesses made up for a continued weakness in the America Online (AOL) Internet unit.
However, although the results beat forecasts, the Internet and media giant dampened expectations for its third quarter, saying it expected the crippled online advertising market to continue to take its toll on revenues.
What's more, AOLTW Chief Executive Officer Richard Parsons confirmed during a conference call Wednesday that the U.S. Securities and Exchange Commission (SEC) is conducting a fact-finding inquiry into the way in which the AOL unit has booked past revenue. News of the SEC probe comes just days after media reports were released saying that AOLTW had performed a series of unusual transactions to prop up AOL's revenues.
Parsons took pains during the call to assure investors that the company's financial reporting adheres to all applicable SEC and regulatory guidelines.
Net income for the second quarter of 2002 was US$394 million, or $0.09 a share, compared to a net loss of $734 million, or $0.17 a share in the same quarter of 2001.
Revenue for the quarter, which ended June 30, came in at US$10.6 billion, a 10 percent increase over the $9.6 billion the company reported for the second quarter of last year.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $2.5 billion, up two percent from $2.4 billion in the second quarter of last year, with cash earnings per share of $0.24, exceeding consensus expectations of $0.22 per share from analysts surveyed by Thomson Financial/First Call.
The stronger-than-expected results were led by solid performances in the company's film and cable businesses, which experienced revenue increases of 26 percent and 18 percent, respectively, over the same period last year.
However, these were offset by AOL's weak results. The Internet unit reported a 3 percent decline in revenue and a 25 percent drop in its EBITDA for the quarter.
Although AOL continued to rack up subscriptions, adding 492,000 new members during the quarter, the weak online advertising market stymied revenue growth, AOLTW said. AOL now claims 35.1 million members. Although some analysts have questioned the membership figures, noting that many members are on free trial subscriptions, AOLTW Chief Financial Officer Wayne Pace defended this practice Wednesday.
"AOL's habit of offering free trial periods is a very inexpensive way for us to convert users (into paying subscribers)," Pace said.
The company said it expected the online advertising market to remain weak into the third quarter, stunting AOL's growth. However, AOLTW expects its full-year revenue to stay on track, growing by between 5 percent and 8 percent, thanks again to its strong film and cable units.