AOL Time Warner Inc. on Wednesday reported a wider third-quarter net loss, but said its cash earnings, which exclude a range of costs, rose as cable and Internet subscriber growth offset a sharp downturn in advertising. 

However, analysts said they were worried by advertising revenue and earnings pressure at AOL, its flagship Internet unit. Merrill Lynch, one of the biggest recent bulls on the company, cut its rating to ``neutral'' from ``buy.'' 

``We are not optimistic about a near-term recovery in AOL's ad-commerce revenue,'' Merrill analysts Jessica Reif Cohen and Henry Blodget said in a research note. 

The world's largest Internet and media company said its net loss widened to $996 million, or 22 cents a share, from $902 million, or 21 cents a share, a year earlier. The results included a $196 million charge for the lowered value of its portfolio and $134 million in merger costs. 

AOL Time Warner said its cash earnings, a measure analysts closely watch that excludes amortization of goodwill and charges, grew to $2.5 billion, or 30 cents a share, from $2.1 billion, or 21 cents a share, a year earlier. 

Wall Street analysts, on average, expected the company -- home to artists like Madonna and Faith Hill and hit shows like ''The Sopranos'' and magazines including Time and People -- to post cash earnings of 26 cents a share, according to Thomson Financial/First Call. 

Revenues rose 6 percent to $9.3 billion from $8.8 billion a year-ago, beating Wall Street consensus estimates of $9.15 billion, according to First Call. 

Year-earlier results were reported on a pro forma basis, which assumes that AOL's $106.2 billion purchase of Time Warner had been completed at that time. 

While AOL Time Warner's results beat most analysts' expectations, which had been lowered after the Internet and media giant cut its 2001 and 2002 targets in the wake of the Sept. 11 attacks on the United States, some analysts expressed concern about its AOL unit. 

``It was not the worst case scenario,'' said John Corcoran, analyst at CIBC World Markets. ``Is this a doomsday scenario? No, it's not. Is this an outstanding quarter? No, it's not. They beat lowered expectations. There are some issues at AOL but overall, this was not a disaster quarter.'' 

LUKEWARM INITIAL REACTION 

After standing by its year-end targets steadfastly for months even as the ad climate deteriorated, AOL Time Warner lowered its 2001 target last month for revenue growth to 5 to 7 percent growth from a previous target of about 10.5 percent. 

It cut its 2001 target for earnings before interest, taxes, depreciation and amortization (EBITDA) to 20 percent growth from about 30 percent growth, citing costs associated with the Sept. 11 attacks and no turnaround in the ad market. 

Subscriber growth was one of the key drivers for the results, with AOL adding 1.3 million new members in the quarter for a total of 31.3 million while Time Warner Cable digital subscribers grew to 2.9 million and its Road Runner cable modem subscribers grew to 1.7 million. 

Revenue at the AOL unit rose 13 percent to $2.2 billion, with subscription revenues climbing 14 percent from a year earlier and advertising and commerce revenues climbing 5 percent to $624 million, boosted by inter-company revenues. 

Ad and commerce revenue growth was offset by a 10 percent decline in commerce revenues. EBITDA grew 22 percent to $742 million, falling short of some analysts' expectations. 

``America Online was the only real disappointment. Their margins came in a little weaker than we expected,'' said Paul Kim, analyst at Kaufman Brothers. 

However, Kim said the company's networks unit, home to HBO and CNN, had a ``fantastic quarter, considering recent events.'' 

Revenue at the unit rose 4 percent to $1.7 billion as subscription revenue growth at the Turner networks and HBO offset a 10 percent dip in ad and commerce revenues at Turner. 

EBITDA grew 29 percent to $450 million, up from the September 2000 quarter's $348 million, reflecting strong subscriber revenue growth and cost-cutting initiatives. 

Time Warner Cable's revenues rose 17 percent to $1.8 billion driven by a 15 percent increase in subscription revenues and a 41 percent increase in ad and commerce revenues, which was boosted partially by increased advertising sold in conjunction with the launch of new channels. 

The unit's EBITDA grew 11 percent to $791 million, benefiting from increased demand for digital video and high-speed Internet services but partially offset by the launch of multiple ISPs delivering service over cable. 

The company's film and publishing units posted strong cash flow growth amid cost-cutting efforts, but analysts said revenue was lackluster. The film unit benefited from the closing of Warner Bros. Studio stores and lower Web development costs.