AOL Time Warner said today its earnings, excluding a range of costs, rose in the second quarter amid efforts to cut costs, but slower-than-expected revenue growth disappointed some Wall Street analysts.
Analysts said that the results were the first sign that the world's largest Internet and media company was beginning to feel the pain of the advertising slump and slowing economy.
"The company missed at the revenue line and reported what you would characterize as a messy quarter, which is not altogether unexpected due to the economic environment," said one Wall Street analyst.
Revenues rose 3 per cent to $9.2 billion from $8.9 billion, below Wall Street consensus estimates of $9.74 billion, according to Thomson Financial/First Call.
Some analysts now questioned how the company would manage to reach its $40 billion revenue target for 2001 that executives have repeatedly stood by in the past, but AOL Time Warner chief executive Mr Gerald Levin said the company was reiterating its 2001 guidance.
"There is nobody (else) who can deliver 20 per cent EBITDA (earnings before interest, tax, depreciation and amortisation), 28 per cent margins and the kind of free cash flow growth of 55 per cent," Mr Levin said, replying to comments that the company was beginning to feel pressure from the economy.
"I don't call that feeling pain at all. And, when we are reiterating our guidance for the year, that's pretty significant." He added.
Levin also said he sees the ad picture stabiliSing and the recent decline bottoming. While he doesn't see an upturn, he said the fact that it has bottomed is significant. The economic slowdown has created a decline in ad spending that has hurt many Internet and media companies' growth in recent quarters.
AOL Time Warner said EBITDA, which the company uses as a measure of cash flow, grew 20 per cent to $2.5 billion.
While subscriptions revenues grew 10 per cent, overall ad and commerce revenues grew only one per cent to $2.3 billion.
"There was weakness in every division except cable, with music especially bad," said Mr Fred Moran, analyst at Jefferies.
Ad and commerce revenues at the networks group fell 8 per cent to $679 million, offsetting revenue growth at HBO and double-digit subscription revenue growth at the Turner networks, the company said.
Publishing's quarterly EBITDA rose 21 per cent to $271 million, reflecting cost savings. The unit, which houses such titles as Timeand Sports Illustrated, has seen a good deal of management reshuffling as some employees take some of the buyouts offered in an attempt to cut costs.
Revenues at the unit fell one percent to $1.2 billion, reflecting weakness in the advertising market. Most analysts had expected single-digit revenue growth.