RealTime IT News

Juno's Subscriber Growth Comes At High Price

National Internet service provider Juno Online Services Inc. Tuesday reported record revenues of $24 million for the first quarter of this year.

Although the company raised $81.1 million in net proceeds through a secondary equity offering completed in February and reported 147 percent growth over last year's figures, the firm's net loss in the first quarter posted at $2.9 million, before subscriber acquisition expenses.

In the 15 weeks following the company's December 1999 announced plan to expand its free basic service to include full Web access, Juno (JWEB) registered 2 million new free Web subscribers through a combination of internal conversions and external marketing. As a result, the company's billable Web subscriber base also continued to grow, for a combined total of 2.66 million registered Juno subscribers.

Charles Ardai, Juno president and chief executive officer, said the numbers validate the company's unique business model, which is based on a tiered hierarchy of service levels ranging from free basic dial-up Internet access to high-speed broadband access.

"With one of the largest dial-up audiences on the Internet, substantial capital resources, and the ability to adjust spending as market conditions warrant, we believe that Juno is unusually well positioned for an ongoing leadership role within the constantly evolving Internet sector," Ardai said.

Juno's broadband service, dubbed Juno Express, was launched in selected markets in March. The service provider has announced plans to expand the new service into additional markets later this year, as well as to supplement its current DSL offering with other broadband technologies, including wireless services.

Juno owns 9.43 million registered subscriber accounts, of which 3 million subscribers were active in March. Of those active Juno accounts, 2.4 million were Web-enabled subscribers and approximately 690,000 were e-mail service only accounts.

Juno's free service expenses increased to $6.1 million in the first quarter of 2000 as compared to $1.6 million in the fourth quarter of 1999, reflecting the expansion of Juno's free basic service to include full Web access. Juno estimates that it spends about $1 per active free subscriber to provide the service each month.

Rick Eaton, Juno chief financial officer said Juno's free access expense represents an Industry leading figure, which he believes, is better than any major competitor.

"If our advertising and e-commerce revenues continue to rise and our telecom expenses continue to decline, we believe that the revenues associated with Juno's free service could exceed the sum of the expenses reported on our Operations," Eaton said. "The free service line and the portion of our cost of revenues line that is associated with our free service may balance sooner than we had anticipated, perhaps as early as the second half of this year," Eaton said.

However, Juno's subscriber acquisition expenses increased substantially in the first quarter, up to $44.8 million from $16 million in the fourth quarter of 1999.

Juno's increased investment in subscriber base growth reflects in part the company's decision to aggressively front-load its subscriber acquisition campaign for 2000 to take advantage of what management believes to be the best time of year in which to conduct direct marketing programs.

Direct mail campaigns represent the single largest component of the company's subscriber acquisition activities. Although Juno has already committed to spend a significant amount on direct mail in April and May, the company currently expects to send little or no direct mail during the months of June, July, and August, which Juno believes is seasonally less favorable