Losses rose slightly at AOL Time Warner Inc. in the third quarter, but the media conglomerate for the most part held its own in a tight economy and an even tighter advertising market.
Overall, AOL Time Warner reported a loss of $996 million, or 22 cents per share, up from $902 million (21 cents) a year earlier. Excluding one-time charges, AOL Time Warner reported cash earnings per share of about 30 cents, beating analysts' consensus estimate of 26 cents per share.
Revenue and cash-flow growth — 6.4 percent and 20 percent, respectively — were in line with earlier reduced guidance.
AOL Time Warner had drastically reduced its previous estimates of 30-percent cash-flow growth and 15-percent revenue growth for the year after the Sept. 11 terrorist attacks and because of the continued advertising slump.
Though third-quarter results showed the impact of the ad downturn — ad sales made up about 21 percent of total revenue, down from 25 percent a year ago — growth at the cable systems and networks helped offset the declines.
CABLE CASH FLOW UP
AOL Time Warner's cable operations performed well. Cash flow at the cable unit was up 11 percent, to $791 million, and revenue rose 17 percent, to $1.8 billion. Advertising and commerce revenue rose 41 percent, to $175 million, driven mainly by increased advertising associated with new channel launches on the cable systems.
At AOL Time Warner's television networks — including Cable News Network and other Turner Broadcasting System Inc. properties, as well as The WB — cash flow rose to $450 million, up 29 percent from $348 million a year ago.
Revenue rose 4 percent, to $1.7 billion, as subscription revenue growth at the Turner cable networks and Home Box Office Inc. more than offset a 10-percent decline in advertising and commerce revenues at Turner.
"The solid growth this quarter underscores the strength of our subscription business," AOL Time Warner CEO Gerald Levin told analysts during a conference call. "We are successfully holding the line on costs. We have a robust business model built on multiple revenue streams."
Levin again forecasted 20-percent cash-flow growth and 5-percent to 7-percent revenue growth this year. He said he expects cash-flow growth in "double digits" next year.
Most of the cable subscriber growth came from digital (about 350,000) and high-speed data (250,000).
Analysts were split on the performance, with UBS Warburg LLC's Christopher Dixon maintaining a "strong buy" rating and Merrill Lynch & Co.'s Jessica Reif Cohen and Henry Blodgett downgrading to "neutral" from "buy."
Merrill cited lower than expected ad revenue at America Online Inc. The Internet-service provider's $2.2 billion in revenue and $742 million in cash flow fell short of Merrill's targets: $2.3 billion and $914 million.
Dixon said in a report the lower advertising revenue at AOL was expected, and pointed to strong subscriber growth — a 1.3 million-home increase — and AOL Time Warner's overall strong subscription revenue.
It appeared Merrill's downgrade prompted a sell-off. The stock fell more than 8 percent, or $2.69, last Wednesday to close at $30.81. It continued to fall early last Thursday.