Update: AOLTW returns to profit

AOL Time Warner (AOLTW) returned to profit in the first quarter as revenue in its movie and TV business increased and restructuring measures took hold.

Net profit was $396 million, or $0.09 per share, for the first quarter ending March 31, 2003. This compares with a net loss of $54.2 billion, or $12.25 a share, for the same period a year ago, the company said Wednesday in a statement.

Analysts polled by Thomson First Call predicted earning of $0.04 a share.

Revenue increased 6 percent over the same period in 2002 to $10 billion, while operating income climbed 9 percent to $1.2 billion.

“As our first quarter indicates, we have gotten off to a good start,” AOLTW chief executive officer Dick Parsons said during a conference call Wednesday.

The company’s AOL Internet division reported an 11 percent increase in operating income on revenue that declined 4 percent. AOL revenue dropped to $2.19 billion for the quarter, compared to revenue of $2.29 billion in the first quarter of last year.

And although the unit’s operating income climbed, it was offset by a 42 percent decline in advertising revenues, the company said.

Furthermore, other AOL revenue fell 61 percent, due mainly to the company’s strategy to eliminate pop-up ads, according to AOLTW.

The Internet unit also reported a loss in subscriptions from the previous quarter, saying that U.S. subscribers numbered 26.2 million at March 31, down 289,000 from Dec. 31, 2002. U.S. subscriptions for the quarter were 141,000 higher than in the first quarter of 2002, however.

Europe subscriptions numbered 6.3 million at March 31, a decline of 63,000 compared with the previous quarter, but an increase of 368,000 versus the year-ago period. Subscriptions from partially owned entities elsewhere in the world totalled 1.9 million for the quarter, down 465,000 from the previous quarter and 733,000 lower than the first quarter of last year.

Total AOL subscriptions at March 31 numbered 34.4 million, down 800,000 from a worldwide membership of 35.2 million at the end of 2002, according to information released by AOLTW.

AOLTW chairman of the media and communications group Don Logan said that the company is aiming to stabilize AOL this year. He also noted that the unit is a “strong source of free cash flow” despite the dwindling number of narrowband subscribers.

AOL hopes to transition many of its dial-up members to its new broadband service, launched last month. Additionally, Logan said that company plans to continue to add new features and premium services to the new offering in an effort to drum up more revenue.

Furthermore, Logan said that the company is looking into ways to derive more revenue from its strong instant messaging (IM) base, noting that AOL Instant Messenger (AIM) has well over 100 million worldwide users sending 1.6 billion messages a day.

“We are looking to find more ways to monetize this market,” Logan said. The comments came in the wake of recent reports that AOL is testing new video streaming services over its IM platform.

While the company is hunting for new revenue opportunities from the AOL division, AOLTW’s first quarter 2003 comeback was due to its success in filmed entertainment, where it reported a 61 percent growth in operating income and an 11 percent increase in revenues. The unit’s benefitted from DVD sales, and growth in Warner Bros. Television, AOLTW said.

But AOLTW still faces a hefty debt load. The company’s net debt rose to $26.3 billion in the first quarter from $25.8 billion at the end of 2002. This net debt balance, according to AOLTW, includes $2.1 billion of incremental borrowings upon the closing of its Time Warner Entertainment Company L.P. restructuring transaction.

Despite this, the company said that it remains focused on reducing its debt by shedding non-core assets. Earlier this week, for example, AOLTW agreed to sell its remaining stake in Comedy Central to Viacom Inc. for $1.2 billion.

Company executives declined to comment on the details of ongoing government investigations into its accounting practices, however, saying only that they are cooperating with investigators to resolve the issue.

Both the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) are looking into allegations that the AOL division double-booked some ad revenue.

During the conference call, Parsons said that the company had “nothing new to report at this time” but that “it remains one of my highest priorities to continue to work and cooperate with regulatory agencies so we can put this to bed as soon as possible.”

The comments came one day after new reports surfaced indicating that the SEC probe has widened to include investigations into deals with Monster.com Inc. and others.

The focus Wednesday, however was on the company’s return to profit, which led it to reaffirm previously released expectations for its 2003 full-year performance.

For the 2003 business year, AOLTW expects revenue for the entire group to grow in the mid-single digits as compared to $41 billion in 2002 and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in the low to mid-single digits as compared to $8.7 billion.

Shares of AOLTW (AOL) rose 3.46 percent to $13.77 on the news Wednesday.