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AOL Earnings More Than Double

January 20, 2000

SPRINGFIELD, Va. (AP) _ America Online, which agreed to buy media leader Time Warner last week, reported sharply higher earnings Wednesday on greater revenues from advertising and e-commerce.

AOL earned $224 million, or 9 cents a share, in the quarter ended Dec. 31, more than double the $86 million, or 4 cents a share, in the same period a year ago. The figures from both periods exclude one-time gains and losses.

Total revenues rose to $1.6 billion, or 41 percent over last year’s second quarter. Revenues from advertising and commerce reached $437 million, an increase of 79 percent.

The solid earnings report, which beat analysts’ estimates by a penny per share, could provide relief to investors worried about the sharp fluctuations in AOL’s stock over the past week.

AOL’s stock rose $2.81 1/4 to $64.06 1/4 during regular trading hours on the New York Stock Exchange Wednesday, before the report was released. The shares rose further to $65 in after-hours trading after the report came out.

AOL shares have fluctuated sharply in the days since the merger was announced, plunging nearly 20 percent below its level of $73.75 before the deal became public.

The gyrations had raised concerns among investors since AOL’s stock is being used to buy Time Warner, meaning that every decline in AOL meant a lower price for the deal. The deal was worth $166 billion when it was announced, but $146 billion at current rates.

Peggy Ledvina, an analyst with Dain Rauscher Wessels, said the quarterly gains were strong but would not calm investors concerned about the merger.

``The nervousness in the stock doesn’t reflect anything this quarter,″ she said.

Analysts who pressed Case and AOL executives during the conference call for details on how the two companies would integrate got general answers, she said.

``It’s too early for them to give us any specifics,″ Ledvina said.

During the quarter, AOL added 1.8 million new members worldwide putting total membership across all its brands at 23.8 million, including CompuServe, and 20.5 million at the flagship AOL service. The company showed strong growth in Europe, where Media Metrix ranked AOL first in online usage on the continent.

``This is a momentous time for America Online,″ chairman and chief executive Steve Case said in a statement.

AOL members averaged 57 minutes online daily during the quarter, an increase of 9 minutes over the same period last year. AOL members also spent $2.5 billion during the 1990 holiday shopping season, more than double that spent during the 1998 Christmas period.

J.P. Morgan analyst Susan White said it would be a ``very busy″ evening for AOL analysts as they digested the numbers and continued to determine how to value the company following news of the mega-merger.

The main question confounding analysts is whether the proposed AOL Time Warner conglomerate should be considered an Internet company, a traditional media company or a blend of both.

Before the merger, AOL was considered the powerhouse among the high-flying Internet stocks, but its image on Wall Street has already changed as investors eye it as a mix of ``old media″ and ``new media″ _ and try to determine just what that means.

In the long term, analysts have said the merger should benefit both companies if executed smoothly. Meantime, Merrill Lynch has said AOL stock could drop to about $55 per share.

Analysts at Schroder & Co. removed AOL from its ``recommended list″ following the announcement, saying the new company ``bears only a partial resemblance to the AOL predecessor.″

The merger is expected to take a year to close and will face regulatory and shareholder approval as well as congressional scrutiny. The Senate Judiciary Committee plans to hold hearings on the deal’s policy implications.

Meantime, a transition team of four top executives from both companies has begun hashing out how to integrate the vastly different operations. Since the companies are so different _ Time Warner deals in movies, music and magazines while AOL is primarily an online service provider _ the transition team does not face the usual merger dilemma of how to chop overlapping functions.

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