Analysts don't see quick fix for AOL

Mon, 04/29/2002 - 8:00pm
Shelley Emling

Copyright 2002 The Atlanta Constitution

The Atlanta Journal and Constitution…04/30/2002

From LexisNexis

New York — As AOL Time Warner's stock price continues to slump, falling 3.6 percent Monday, analysts are abuzz over what might light a fire under the share price in the near future.

Their conclusion? There isn't anything.

With no earnings announcement scheduled for another three months, and the perception that the company has no real plan to keep customers from shifting to high-speed Internet access offered by competitors, there's little on the horizon to send the stock price up again.

For the past week, the stock price has closed below $ 20, which many analysts had considered a natural floor, based on the value of its assets. It closed Monday at $ 18.04.

Reporting first-quarter earnings last week, the world's largest media company announced the biggest quarterly loss in U.S. corporate history. Company executives acknowledged their flagship Internet division, once considered the company's crown jewel, was suffering from declining advertising sales.

"It's not clear what the company can do to impress Wall Street beyond announcing a major broadband initiative or releasing a really great earnings report," said Rob Lancaster, an analyst at Yankee Group, a Boston research firm. And he noted the next earnings report isn't due until summer.

Even then, analysts hold out little hope second-quarter earnings will do much to reignite the stock.

"The company's troubles are due to its reliance on advertising revenues and other issues related to its slow rollout of broadband, and it's not clear when these things might improve," Lancaster said.

AOL Time Warner executives consider a faster Internet pipe to the home as essential to selling a slew of new products and services such as digital music subscriptions and movie downloads. These services could raise monthly cable bills to more than $ 200.

Lancaster said that regardless of the stock price, the company has enough assets to make deals to build its broadband subscriber base.

However, it faces other obstacles.

AOL can funnel its dial-up Internet subscribers to high-speed service through Time Warner Cable, the nation's second-largest cable company behind the pending combination of AT&T Broadband and Comcast. But it will be hard-pressed to expand its base among third-party cable customers.

Since cable operators have been signing up broadband customers at a fairly brisk pace, they have found little incentive to offer AOL-branded high-speed access.

"Cable operators won't need any help marketing broadband until they saturate the market of higher-income early adopters, and that won't be for another few years," said Kavir Dhar, a media analyst at Jefferies & Co. "I just don't see AOL signing any broadband deals with any cable operators anytime soon."

From a regulatory standpoint, there is little pressure for competing cable operators to open up their pipes.

Last month the Federal Communications Commission voted to classify cable-modem service as an "information service" rather than a "cable service," meaning companies such as Comcast and Cox Communications do not have to provide what's called "open access" on their networks.

In short, analysts said it's tough to predict when the stock that sold for more than $ 50 as recently as last June might see a rebound.

"I think the stock will wallow for some time before going back up," said Tom Wolzien, an analyst at Sanford C. Bernstein.

"The company's just plain out of favor with Wall Street right now."


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