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AOL Seen Meeting 2nd-Quarter Views

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NEW YORK -- AOL Time Warner Inc. is expected to meet analysts' estimates when it releases its second-quarter results early Wednesday despite the weakened advertising market.

The New York media, Internet and entertainment company is expected to post earnings of 28 cents a share on revenue of $9.7 billion in the quarter ended June 30, according to analysts surveyed by Thomson Financial/First Call. A year earlier, on a pro-forma basis as if America Online Inc. had already acquired Time Warner Inc., AOL (AOL) earned 23 cents a share on $8.91 billion in revenue.
CIBC World Markets Corp. analyst John Corcoran estimates AOL will post earnings before interest, taxes, depreciation and amortization, or Ebitda, of $2.66 billion. The year earlier's figure was $2.12 billion.

He believes AOL is on track to meet its oft-stated goals of posting Ebitda of $11 billion on $40 billion in revenue for the full year. Last year, on a pro-forma basis, the company had Ebitda of $8.4 billion on $36.2 billion in revenue.
"They will move heaven and earth to make those numbers," Mr. Corcoran said. "It would be amazing if they made them, because they picked them when the world was fundamentally different in this space," a reference to the months after America Online and Time Warner first unveiled their proposed marriage in January 2000. Since then, the Internet sector has imploded and the advertising market has dried up. AOL has been vulnerable to both trends, but so far it has managed to produce respectable financial results.

Mr. Corcoran noted that AOL has been able to sign solid advertising deals because it has numerous media properties, including the America Online Internet service, Time Inc. magazine unit and cable TV channels like CNN. Last week, for example, AOL inked a deal with Bank of America Corp. (BAC) under which each company will promote the other's services.

One of the best-performing areas of the company continues to be its Internet-service provider. America Online recently said it surpassed 30 million subscribers, further cementing its huge lead in the market. The second-largest paid provider, Microsoft Corp. (MSFT), has five million customers.

Merrill Lynch&Co. analysts Henry Blodget and Jessica Reif Cohen estimate America Online's advertising and commerce revenue will rise 7% to $774 million in the second quarter, compared with first-quarter levels. Amid the downturn in the online ad market, they added America Online has likely gained market share.

AOL's cable unit should also turn in a solid quarter, the Merrill analysts said. They estimate the cable unit's Ebitda will rise 15% to $791 million from $685 million a year earlier, with revenue increasing 13% to $1.7 billion from $1.5 billion last year.

The networks unit faced a difficult market environment, but had a respectable quarter. The Merrill analysts estimate revenue will be $1.9 billion, up from $1.8 billion last year, with Ebitda rising to $430 million from $376 million. The unit benefited from cost cuts, the company's divestiture of the money-losing World Championship Wrestling and narrowing losses at the WB Network.
AOL's other units had weaker results, according to the Merrill analysts. Filmed entertainment suffered in part from the disappointing performance of "Town&Country," which cost $90 million to make but took in $7 million in domestic gross revenue. They added the publishing unit suffered as a result of the weak ad market and the CD-release schedule at AOL's music unit didn't feature many big-name stars.

Analysts will be most interested in hearing whether AOL executives continue to believe the company can meet its 2001 financial targets.
ABN AMRO Inc. analyst Arthur Newman is skeptical. Even with America Online raising its monthly subscription rate to $23.90 from $21.95, he said AOL might miss its Ebitda goal. Mr. Newman expects 2001 Ebitda of $10.8 billion, with it being "pulled down by slower advertising and content-related businesses, offset by subscriptions."

Still, he thinks investors will be satisfied by such a miss, given that the economy has worsened since the original targets were outlined.

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