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United Online Posts First Profit

Firm operating cut-rate access services NetZero and Juno has surprised analysts and skeptics.

November 08, 2002|David Colker | Times Staff Writer

Discount Internet service provider United Online Inc., which offers online connections for $9.95 a month, posted its first quarterly profit Thursday, prompting analysts to declare that the cut-rate Internet service is finally in the game.

The Westlake Village company said it earned $1.5 million, or 3 cents a share, in its fiscal first quarter ended Sept. 30, contrasted with a loss of $23.9 million, or 62 cents, a year ago. Revenue jumped to $58.1 million, or 38%, from $42 million last year.

The company, which offers online service under the brand names NetZero and Juno Online at about half the rate of competitors such as AOL Time Warner Inc.'s America Online unit and EarthLink Inc., had long struggled.

"This is really a milestone for them," said media analyst Fred Moran of Jefferies & Co., which doesn't do business with United Online or own its shares. "It proves once and for all that they have uncovered an efficient strategy for growth in the Internet access business that can generate real profits."

Moran, who does not own stock in the firm, had predicted United Online would add about 88,000 paid subscribers in the quarter. Instead, the company added 140,000, bringing its paid-subscriber total to 1.85 million.

"They have put on a very careful, methodical marketing program," Moran said. "This shows it has gained traction."

The earnings announcement came before markets closed. United Online shares Thursday jumped $1.28, or nearly 10%, to $14.70 on Nasdaq.

The company's original goal was to offer free Internet service to subscribers willing to look at its ads.

But like many Internet ventures, it was not able to make a go of it on advertising income alone. United Online still offers free Internet access, though service is limited to 10 hours a month.

United Online was formed by the June 2001 merger of NetZero and Juno, and the combined company focused on luring paid subscribers with discount rates.

At the time of the merger, several analysts expressed doubts that the company would be successful, but "just a year later they're confounding the skeptics," Moran said.

The company successfully bid $8.4 million last month to buy the discount Internet access service from Kmart Corp., which has filed for Chapter 11 bankruptcy protection.

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