America Online Inc came clean with its first quarter figures yesterday, which makes us wonder what the highly-paid and highly- regarded analysts on the Street have been doing for all these years, believing the company when it said that most subscribers stayed for at least two years. For that was the reason behind the Dulles, Virginia on-line services company taking a previously- announced $385m write-off for deferred subscription acquisition costs, where it had previously capitalized the advertising costs over at least two years. The analysts’ friend, the Wall Street Journal even gently put the boot in, noting that in taking the hit the company was reducing to vapor what accountants Ernst & Young had certified as solid nine weeks earlier. The company is now taking all advertising costs as expenses. As a result, first quarter net losses were $353.7m, up from losses of $10.9m last time, that included a $17.0m charge for acquired research and development, on revenues that were up 77% to $350.0m. Marketing spending increased in the quarter, ahead of its traditionally strong December and March quarters, when it’s too cold to go outside too much. AOL added around 400,000 net new subscribers in the quarter, taking it to roughly 6.9m users worldwide. The average hourly usage came to 6.95 hours per member and hit its highest level ever in October, said the company. The company’s changing it’s model to rely less on subscribers and introduced a flat $19.95 rate last week that takes affect next month though it warns that it lacks historical experience with this pricing. There were no details as to what alternative higher-margin revenue streams the company is planning to get into, though electronic commerce is thought to be a central plank. Shares were down $1.125 at $24.00 before the numbers came out after the close yesterday. They have been as high as $71.00 in the last 12 months.
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