A massive $385 million write-off in deferred marketing costs has led to online services provider America Online posting record losses for the first quarter of 1997.
The company had warned in October that, instead of deferring marketing costs, it would start accounting for such costs as they were incurred. AOL admitted that its controversial practice of amortising marketing costs over a period of up to 12 months is the reason for losses of $353.7, or $3.80 a share, for the the quarter.
However, not all was doom and gloom as the company announced strong subscriber growth bringing worldwide membership from 6.5 to 6.9 million, lower churn rates and higher advertising and electronic sales revenues. AOL said its changing business model was also expected to reduce reliance on online subsciber fees for revenue and profits as it intended to grow new high-margin revenue streams.
Excluding the one-off charge, AOL recorded operating profits of $19 million, or 17 cents per share, for the three months ended 30 September, up from $6.1 million or six cents per share a year ago. AOL said revenue for the first quarter had jumped 77 per cent to $349.9 million from $197.9 million, a gain it attributed to an increased subscriber base and higher revenue from advertising and electronic commerce. It added that it now provides access a ?highly desirable demographic audience to more than 50 advertisers, up from six a year ago".
?These changing market dynamics, coupled with a lack of historical experience with flat-rate pricing, create uncertainties regarding the level of expected future economic benefits from online service subscription revenues,? the earnings statement said.
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