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AOL Time Warner Expected to Scale Down Forecast

Media: Subscriber growth and recent management changes may be addressed in Monday conference call.

January 04, 2002|RESHMA KAPADIA | REUTERS

NEW YORK — AOL Time Warner Inc. is expected to rein in its broad financial guidance Monday, as the world's largest Internet and media company contends with slower growth of its U.S. Internet subscriber base and a soft advertising market.

Analysts looking forward to a conference call Monday were hoping AOL Time Warner executives would clear up issues pressuring shares, including the company's pending purchase of the remaining stake in AOL Europe held by German media conglomerate Bertelsmann.

One of the key things analysts will look for will be more details on the company's 2002 outlook, including AOL Europe and recent accounting changes regarding goodwill.

In September, the company cut its 2001 growth estimates and predicted that 2002 would bring "double-digit" growth in earnings before interest, tax, depreciation and amortization, or EBITDA. "We think they will narrow the definition of double-digit and likely provide a smaller range--in the low teens and something above 10%--for EBITDA growth," said Goldman Sachs analyst Anthony Noto.

Analysts also expect to learn about subscriber growth, recent management changes and other topics during AOL Time Warner's first call since Chief Executive Gerald Levin's decision to retire and the appointment of top deputy Richard Parsons to succeed him.

Several Wall Street analysts have voiced concerns about slowing dial-up subscriber growth, long a big growth engine at AOL. These analysts say demand for high-speed Internet services is not growing fast enough to offset that slowdown.

Lehman Bros. analyst Holly Becker said she has been disappointed by AOL's inability to sign pacts with cable providers to offer high-speed Internet services.

High-speed access is one of the keys for AOL Time Warner's growth, analysts said. International expansion is another crucial area, and analysts said AOL Europe will prove to be a big test.

Concerns about a slower rebound for advertising and e-commerce revenues also have led analysts to trim their revenue and EBITDA estimates for 2002.

"Since the AOL Time Warner merger closed in January 2001, we have reduced our 2002 revenue estimate by 16% (excluding AOL Europe), which now implies 9% top-line growth," Morgan Stanley Internet analyst Mary Meeker said.

If AOL Time Warner can't show more growth momentum, and the advertising market doesn't rebound by early 2003, Meeker said she probably will have to make additional estimate cuts.

AOL Time Warner shares lost 2 cents to close at $31.58 on the New York Stock Exchange, down about 17% from a near-term high of $38.25 in mid-November.

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