AOL Time Warner CFO Maintains Ad Revenue Forecast

AOL Time Warner (AOL) chief financial officer Wayne Pace Wednesday stuck by the company's targets for advertising revenue at its troubled AOL online unit a day after a top Internet analyst voiced concerns about its online ad prospects. 

While the ad climate for television is showing some signs of improvement and May was a good month for publishing, a rebound has not yet reached the online sector, which would likely be the last to improve, Pace told investors at a Deutsche Bank conference.

The company has sliced its revenue and earnings targets as it contends with the sharp slump in ad spending, especially at its AOL online unit. The Internet business is also facing a slowdown in its dial-up subscriber base and a slow migration of its members to high-speed Internet services.

Lehman Bros. analyst Holly Becker cut her estimates on AOL Tuesday, citing a more sustained ad downturn in the second half of 2002 and 2003. She cut her estimate of AOL's 2002 ad revenue by $147 million, to $1.79 billion, and her 2003 estimate to $1.6 billion, sending the stock sliding.

But Pace reiterated the company's targets for ad revenue to total $1.8 billion to $2.2 billion in 2002. He cited efforts by Chief Operating Officer Robert Pittman, who has been dispatched to revive AOL, to break down past ad relationships and re-evaluate the way the online unit has sold ads.

AOL shares closed off 10 cents at $17.10 on the New York Stock Exchange. Its stock has fallen about 40 percent this year, underperforming most of its media peers.

Once seen as the media leader in terms of growth, AOL is looking at more traditional ad deals like those advertisers strike with TV, newspapers and radio, in addition to the pacts that have been popular since the dot-com heyday, when companies bought prominent space on a Web site, Pace said.

He expects AOL's ad revenues to grow in 2003 from year-end 2002 levels. He also reiterated AOL Time Warner's 2002 outlook of 5 percent to 8 percent revenue growth and 5 percent to 9 percent growth in earnings before interest, taxes, depreciation and amortization, or EBITDA, for the whole company.

Pace reiterated that AOL Time Warner's second-quarter revenue growth would be in the mid-single digit range.


Concerns about how the company will unwind or resolve two cable-related relationships with AT&T Corp. and the Newhouse family have also pressured the stock.

"It is possible that it happens but it doesn't affect our capital ratios, financials or the value of our stock. We are not going to write a check. If they go away, they go away," Pace said.

Pace was among the first to publicly acknowledge that AOL Time Warner may lose the 2.3 million cable subscribers held through its pact with the Newhouse family, whose privately held publishing group includes Vogue and Vanity Fair magazines.

He said the company was in talks with both Newhouse and AT&T on their respective cable-related pacts. Efforts to keep the Newhouse subscribers could include a deal related to its high-speed Road Runner Internet operations or a pact to buy programming together, Pace said.

AT&T, which is awaiting the approval of Comcast Corp.'s purchase of its cable operations, has indicated it wants to unwind its 25 percent stake in Time Warner Entertainment, the joint venture it has with AOL encompassing some Time Warner cable assets, HBO and Warner Bros. studios.

Pace said a resolution could come this year.

Investors have worried about the Internet and media giant's financial flexibility in the wake of these deals.

Company officials have maintained that they will do nothing to jeopardize their strong investment grade rating. This includes not doing any significant acquisitions or increasing its stock buyback program in the near-term, Pace said. The company cut its buybacks significantly earlier this year.

Pace added that there was no need for AOL to raise cash.