RealTime IT News

AOL Investors Confident Despite Likely Bad News

AOL Time Warner executives confirmed the $6.75 billion cash purchase of its European venture and dished out plenty of bad news at a conference late Monday afternoon.

Executives at the media giant are hoping a buyout of AOL Europe, a joint venture between AOL Time Warner and Germany-based Bertelsmann, will be looked upon with favor by Wall Street analysts, who are likely going to be disappointed by AOL's financial status and looking for a reason to keep the company in their portfolios.

According to officials, the recession is the reason for only five to eight percent growth in 2001 and eight to 12 percent earnings before interest, taxes, depreciation and amortization (EBITDA).

Richard Parsons, AOL's incoming chief executive officer (replacing outgoing Gerald Levin), said AOL was, in effect, penalized by the economic downturn in 2001, but predicts it will be the first to rebound.

"AOL Time Warner performed well in 2001, despite the current environment," Parsons said.

As predicted, Parsons is taking a conservative approach to 2002, promising nothing but hoping for the best. He expects zero growth overall in the first quarter of 2002, as well as zero growth in advertising sales for all of 2002.

Wayne Pace, AOL's newly-minted chief financial officer, had the uneviable job of informing investors of the $40 to $60 billion charge it would be taking as it revamps its accounting practices. The one-time goodwill charge, Pace said, "will not affect our operations or investment rating."

Pace also said continued investments to increase market share in the company's many divisions would not be hampered by the losses and expected marginal growth.

Wall Street analysts, meanwhile, have been cutting their own outlook estimates for the media company, which had called for double-digit growth expectations when the merger of America Online and Time Warner Inc. was approved by federal regulators last year.

Investment firm Goldman Sachs & Co. remains confident in the company although it reported that this is in comparison with the other online media companies, which performed less than admirably in 2001.

"We continue to recommend AOL and believe it is the most attractive stock in both our Internet New Media and Entertainment universes, having significantly underperformed its peers during the recent cyclical rally," GS' Monday morning report said. "Despite slowing growth, AOL remains one of the fastest growing media companies -- benefiting from a diverse business mix that relies heavily on subscription-based businesses, cost cutting, and recent film success."

Deutsch Bank, on the other hand, is downgrading AOL, citing the new management's difficulties in showing gains in most of the combined company's divisions, especially online advertising.

In spite of analyst worries, AOL Time Warner still remains a hot stock for investors. Despite the downgrade by Deutsch Bank, it is still rated a "strong buy," while Goldman Sachs kept the company on its "recommended" list.

Bear Stearns, J.P. Morgan and Kaufman Bros., on the other hand, have gone so far as to upgrade their AOL opinions to "buy."

The marriage of AOL and Time Warner was touted by executives on both sides to be the perfect marriage of old media and new. Cross-promotional deals between Time Warner's extensive cable system and publishing departments and AOL's more than 33 million Internet customers were supposed to marshal in a new era of advertising.

Unfortunately, the merger culminated right about the time the dot com explosion was turning into an implosion. Online advertising, across the board, dropped considerably, putting many media companies on the defensive.