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

months for direct marketing.

Consequently, the company’s subscriber acquisition plans for the remainder
of 2000 call for a slightly smaller investment in the second quarter
followed by a significantly lower level of spending in the second half of
the year.

On a per-share basis, Juno reported a net loss of $1.28 for the first
quarter of 2000, compared with a pro forma net loss per share of $0.32 for
the first quarter of 1999. Juno contents that its subscriber acquisition
expenses accounted for loss, focusing on the fact that Juno’s net loss per
share before subscriber acquisition expenses was only $0.08 this year.

Ardai said Juno continues to be one of the fastest growing Internet access
providers in the U.S. and that the future looks financially rosy for the firm.

“We look forward to further developing the value of the asset we have
built,” Ardai concluded.

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