AOL Time Warner reports profit despite AOL drag

AOL Time Warner (AOLTW) reported a profit for its second-quarter results, as the company's film and cable businesses made up for...

AOL Time Warner (AOLTW) reported a profit for its second-quarter results, as the company's film and cable businesses made up for a continued weakness in the America Online (AOL) Internet unit.

However, although the results beat forecasts, the Internet and media giant dampened expectations for its third quarter, saying it expected the crippled online advertising market to continue to take its toll on revenues.

AOLTW chief executive officer Richard Parsons confirmed that the US Securities and Exchange Commission (SEC) is conducting a fact-finding inquiry into the way in which the AOL unit has booked past revenue. News of the SEC probe comes just days after media reports were released saying that AOLTW had performed a series of unusual transactions to prop up AOL's revenues.

Net income for the second quarter of 2002 was $394m (£251m), compared with a net loss of $734m the same quarter a year ago.

Revenue for the quarter, which ended 30 June, came in at $10.6bn (£6.7bn), a 10% increase over the $9.6bn the company reported for the second quarter of last year.

The stronger-than-expected results were led by solid performances in the company's film and cable businesses, which experienced revenue increases of 26% and 18% respectively, over the same period last year.

However, these were offset by AOL's weak results. The Internet unit reported a 3% decline in revenue and a 25% drop in its EBITDA for the quarter.

Although AOL continued to rack up subscriptions, adding 492,000 new members during the quarter, the weak online advertising market stymied revenue growth, AOLTW said.

AOL now claims 35.1 million members. Although some analysts have questioned the membership figures, noting that many members are on free trial subscriptions, AOLTW chief financial officer Wayne Pace defended this practice.

"AOL's habit of offering free trial periods is a very inexpensive way for us to convert users [into paying subscribers]," Pace said.

The company said it expected the online advertising market to remain weak into the third quarter, stunting AOL's growth. However, AOLTW expects its full-year revenue to stay on track, growing by between 5% and 8%, thanks again to its strong film and cable units.

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