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February 11, 1997updated 05 Sep 2016 12:02pm

NETCOM PAYS HEAVILY FOR COMPETITION AND EXPANSION

By CBR Staff Writer

Netcom On-Line Communications Services Inc, or Netcom as it’s more commonly known, used every method known to accountants to try and avoid revealing that it lost money, and quite a lot of it in the fourth quarter and fiscal 1996. We first came across something called EBITDA (earnings before interest, taxation, depreciation and amortization) a couple of years back, but the San Jose, California-based internet service provider Netcom has introduced to us, at least, a new level of book manipulation: EDITDASM – add sales and marketing to that last acronym and you get the picture. And lo and behold, the sales and marketing expenses, along with wages appears to be the main reason for the heavy losses, rising as they are, at a slightly faster rate than revenues. Netcom’s net losses were $11.5m in the quarter, up from $5.4m last time, on revenues that were up a healthy 85% to $36.4m. For the year to December 31, net losses were $44.3m, up from $14.1m the previous year, as revenues rose 130% to $120.5m. The losses per share of $0.99 and $3.85 for the quarter and year respectively were inside First Call average estimates, but the company said in December that it would be in the black at the EBITDA level, which it failed to achieve, turning in EBITDA losses of $3.2m. At that time Netcom bucked the trend and announced that it would be offering premium rates, abandoning its $20 monthly flat rate and leaving the consumer market to others, concentrating on corporate customers, just as America Online, MSN and others were all pinning their colors to the flat rate mast. In light of the shenanigans over at AOL this might prove a shrewd move in the long-term for Netcom. Details of the new plan are due any day now. Netcom had warned back last August that it would continue to incur substantial losses for the foreseeable future due to intense competition at home and abroad. Establishing a presence in the UK and Canada also cost the company a fair amount during the fiscal just ended. At the third quarter stage, Netcom attributed some 40% of its losses to international start-ups, but yesterday was not revealing the percentage for the year-end. Average revenues per subscriber rose 4% in the fourth quarter compared to the third, at $21.04 per month. Gross margins across the board were 26% in the fourth quarter, up two percent on the previous one.

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