Time Warner issued its Q3 06 earnings report this morning and based on the glowing press reports, you’d think AOL is in the midst of a great turn-around as the online service abandons its premium subscriber approach in favor of a free Internet model. Granted, the overall company performed very well, with Time Warner posting net income of $2.3 billion, almost triple the $853 million in net income for the year-ago quarter, an impressive rise driven primarily by the acquisition of cable systems from Adelphia. (Because of the asset acquisitions and spin-offs, the earnings report was thin on apples-to-apples financial data, particularly for the high-performing cable segment.) Revenues rose 7% to $10.9 billion.
Time Warner execs emphasized a better-than-expected performance at AOL, which flipped the switch to a free Internet service this summer. As expected, the online unit lost a substantial number of paying subscribers, 2.5 million, to end the quarter with 15.2 million paying customers. Around 1.5 million of these members converted to AOL’s free option.
Ad revenue at AOL rose 46% to $479 million from Q3 05 to Q3 06, largely due to third-party advertising run on other web sites via AOL-owned Advertising.com. But, that growth represented a gain of only $30 million over Q2 06 levels, a rise in ad revenue that was only about half (53%) of the $57 million gain in ad revenue the previous quarter.
Moreover, despite AOL’s move to open up its service to all comers during Q3 06, a development that should have generated greater traffic, both average monthly unique visitors and page views dropped from Q2 06 to Q3 06. The average number of monthly unique visitors declined from 113 million to 112 million, while total page views slipped from around 52 billion to around 49 billion.
CEO Dick Parsons said during the company’s earnings call that AOL is signing up more new users than expected. “This progress is reinforcing our confidence that AOL is on track to start growing usage, meaning page views next year. Fundamentally this is exactly what we were trying to accomplish,” Parsons said.
Somehow, the 46% rise in AOL’s ad revenue plus the idea that users haven’t abandoned AOL altogether have coalesced into positive press reports about the turn-around of AOL. It doesn’t hurt that AOL actually posted a 21% year-over-year rise in cash flow due to all the cost reductions that result from the lower paying subscriber base, a relatively impressive feat given that overall AOL revenues dropped by 3% sequentially, as well as 3% year-over-year.
Here’s the headline from Reuters: “Time Warner profit rises on AOL, cable.” Here’s the headline from AP: “Cable, AOL lift Time Warner’s 3Q results.” Here’s TV Week’s headline: “Time Warner Profit Surges on AOL, Cable Systems.” And on and on.
But with slipping revenue, weakening traffic and page views and still-uncertain growth in ad revenue, AOL hardly deserves the credit it has received. Cable, on the other hand, is still a star, even if it’s hard to say just how well Time Warner’s cable properties performed during the quarter (again, not enough apples-to-apples data yet).
Revenues for the cable group grew 44% year-over-year to $3.2 billion, with the historical systems (the apples-to-apples) reporting revenue growth of 15%. Cash flow for the cable group grew 28% to $1.1 billion.
| AOL Selected Results ($ in mil, except per user) | |||||
| 3Q 05 | 4Q 05 | 1Q06 | 2Q06 | 3Q06 | |
| Total U.S. AOL Subs. | 20,100 | 19,475 | 18,640 | 17,664 | 15,198 |
| Net Change | -678 | -625 | -835 | -976 | -2466 |
| % Change | -3% | -3% | -4% | -5% | -14% |
| Total AOL Ad Revenue | $ 328 | $ 379 | $ 392 | $ 449 | $ 479 |
| Net Change | $ 8 | $ 51 | $ 13 | $ 57 | $ 30 |
| % Change | 3% | 16% | 3% | 15% | 7% |
| Total AOL Revenue | $ 2,041 | $ 2,012 | $ 1,981 | $ 2,046 | $ 1,983 |
| Net Change | $ (56) | $ (29) | $ (31) | $ 65 | $ (63) |
| % Change | -3% | -1% | -2% | 3% | -3% |
| Domestic Ad Revenue (Less TAC) | na | $ 259 | $ 275 | $ 295 | $ 304 |
| Avg. Mo. Unique Visitors | na | 109 | 107 | 113 | 112 |
| Ad Revenue Less TAC Per Unit | na | $ 2.38 | $ 2.56 | $ 2.62 | $ 2.71 |
| Total Page Views | na | 53,527 | 52,634 | 51,665 | 48,692 |
| Monthly Page Views/Unique Visitor | na | 164 | 163 | 153 | 145 |
| Domestic Ad Revenue Less TAC Per 1,000 Page Views | na | $ 4.83 | $ 5.23 | $ 5.71 | $ 6.24 |
| OIBIDA | $ 465 | $ 336 | $ 444 | $ 505 | $ 563 |
Cynthia Brumfield at 5:58 PM|Comments(0)
Blogs We Read
