WASHINGTON, Dec. 3 (UPI) -- Shares of AOL Time Warner took a nosedive Tuesday, falling over 14 percent, after the company forecast 2003 online advertising revenue from the core AOL unit would markedly drop compared to the current year.
AOL Time Warner affirmed its 2002 guidance for its America Online division but warned of flat revenue in 2003, weighed down by sharp declines of 40 percent to 50 percent in advertising and commerce revenue.
This is the division that was once in the lauded position of being able to buy Time Warner, but has come to be considered the less-than-stellar partner, with the company also announcing Tuesday a new strategy going forward for the AOL unit.
Overall it has been a shaky nearly two years since the marriage of the new media giant AOL and the old media titan Time Warner, with a steady decline in stock valuation of the merged behemoth, and with each unit undergoing a clash of cultures. The result after two years -- perhaps somewhat unexpected -- is that a number of people now leading the AOL division have come from the Time Warner side.
It had been expected that new media would lead old in the executive suite.
AOL Time Warner's news came at a large Tuesday morning meeting between top company officials and hundreds of Wall Street analysts, investors and news media during with the company released financial statements and its strategic plans.
Jon Miller, the AOL division's new chief executive officer, who came over recently from the Time Warner side, said the old AOL "ends now," with the online flagship of this media conglomerate planning to focus on member satisfaction and retention.
"We have to become even more relevant to our members experience," Miller said. "We'll keep leveraging the first and exclusives that are making it cool to be on AOL again.
Key to this plan, it was announced, is that AOL will begin to offer exclusive content drawn from the Time Warner media empire, including video from CNN, content from People, Teen People, InStyle, Entertainment Weekly and other magazines, music from the Warner Bros. music division, and HBO programs, among other Time Warner properties.
With subscriptions beginning to slow for the lower speed dial-up AOL customers, at issue for retaining current customers and for migrating existing and new customers to the faster broadband service, is offering compelling content.
AOL Time Warner chief executive officer Richard Parson said: "Our hope and anticipation is to work across the entire array of all our business and create an online product offering that is so compelling that online consumers simply can't live without it."
The content emphasis will be a key part of turning the AOL division around.
Media expert Jordan Rohan, an analyst with SoundView Technology Group, said in an interview with CNBC, "Longer term problems take longer in execution."
He asked rhetorically why current AOL users would pay the extra to switch to the broadband service, unless the online unit offers very compelling online content.
Rohan, however, thinks that AOL Time Warner will bring about the needed change, predicting a definitive turnaround for 2004, adding also that he has "a lot of confidence " in the two sides bringing themselves together.
"They have to get along," Rohan said.
In AOL's financial statements providing a preliminary 2003 outlook, the company's online division, said that it expects solid growth in worldwide subscription revenue will be offset by declines in advertising and commerce revenues of 40 to 50 percent, largely due to "lower revenue recognition from prior-period commitments." As a result, overall revenues for the division will be essentially flat in 2003 compared with 2002.
With the decline in high-margin advertising and commerce revenues, the company said that it expects earnings before interest, taxes, depreciation and amortization to decrease 15 to 25 percent year over year.
The company also reaffirmed its previously provided 2002 outlook for its America Online division, saying that expects America Online's full-year 2002 total revenues to range between $8.8 billion and $9.0 billion and advertising and commerce revenues to be between $1.5 billion and $1.6 billion. The company also said it expects America Online's EBITDA to total between $1.7 billion and $1.8 billion, trending toward the high end of that range.
Wayne Pace, chief financial officer for AOL Time Warner, said: "Our 2002 results continue to track as we expected. Even though it's early to give a precise 2003 outlook for America Online, management has just concluded a comprehensive review of its operations and has developed an achievable business plan to build a strong foundation for the future."
He added that "It is clear that 2003 will be a transition year, but with this plan we expect America Online once again to deliver solid .. growth beginning in 2004."
Separately, AOL Time Warner said it also expects to achieve its previously announced overall company outlook for full-year 2002 EBITDA growth at the low end of the 5 to 9 percent range and full-year revenue growth within the 5 percent to 8 percent range.
AOL Time Warner stock fell by 14.24 percent Tuesday, declining by $2.36, to trade at $14.21 a share.
