AOL Q1 Operating Profit Up, Revenue Flat

NEW YORK America Online’s operating income before depreciation and amortization rose 21 percent in the first quarter on flat revenue of $2.19 billion.

The Time Warner Internet unit posted a 5 percent ad revenue decline–an improvement over last year’s double-digit decreases. The reduction of benefits of prior-period contract sales and lower inter-company revenue of $31 million contributed to the drop, but were partially offset by increases in paid search.

The AOL results were released as a part of Time Warner’s first-quarter earnings report.

AOL’s first-quarter operating income before depreciation and amortization totaled $489 million, up from $404 million in the year-ago quarter. Operating income increased 43 percent to $277 million. The boost reflects 5 percent overall lower expenses, led by lower consolidated network expenses.

The Dulles, Va.-based company continued to lose subscribers in Q1, as people migrate to high-speed Internet access or lower-cost, dial-up competitors. As of March 31, AOL had 24 million domestic subscribers, down 237,000 for the quarter. Still, subscription revenue grew 1 percent, due primarily to the performance of AOL Europe. The overseas online service, which has about 6.4 million members, benefited from favorable foreign currency exchange rates and higher prices.

AOL’s other revenues decreased 21 percent, due to its previously announced strategy to reduce the promotion of its merchandise business.

The Securities and Exchange Commission continues to investigate a range of transactions principally involving the AOL unit, including advertising arrangements and the methods used to report subscriber numbers. The SEC has determined that the accounting of two related transactions between America Online and Bertelsmann AG should be adjusted. Time Warner said that it continues to believe that the accounting for those transactions was appropriate. However, the company said that it might learn additional information as a result of its own review, discussions with the SEC and/or the SEC’s ongoing investigation that would then lead it to reconsider its views.

Shares in Time Warner (TWX) closed on the New York Stock Exchange today at $16.51, down 31 cents or 2 percent. The stock’s 52-week high is $19.30 and low is $12.95.