AOL Still a Drag on Time Warner

Last year, when Time Warner (NYSE: TWX) dropped the AOL from its moniker like a hot potato, it reflected the flux at that portion of the company. And, despite current triumphs like The Return of the King, AOL remains kind of a royal pain. Higher revenues may have helped reverse last year's fourth-quarter loss, but the AOL unit remained the only business segment where revenues declined.

Time Warner, a Motley Fool Stock Advisor pick, reported fourth-quarter earnings of $638 million, or $0.14 per share, as compared to a loss of $44.91 billion, or $10.04 per share in the year-earlier period. Revenue improved by 6%, which made up for the lackluster performance from AOL.

For 2004, the company predicts growth across the board, including at the struggling AOL unit. Indeed, the company sees each of its reporting segments growing in 2004, except the film segment, which will face some tough comparisons following this year's Oscar-nominated blockbuster. Time Warner repeated its expectations that the AOL unit will return to low double-digit growth this year.

Despite the high-profile nature of the AOL side of the business, Time Warner remains a vast media conglomerate. Things can get AOL-centric, despite the fact that its segments include well-known entities like cable stations HBO and TNT, as well as high-speed cable Internet access. Among the new services it touted in its conference call (transcript courtesy of CCBN StreetEvents) was the voice over Internet protocol service it's rolling out, surely an attention grabber, given the recent interest in the space.

It's difficult to forget, of course, the competitive hurdles that face AOL, from EarthLink (Nasdaq: ELNK) and United Online (Nasdaq: UNTD) to Verizon (NYSE: VZ) and SBC (NYSE: SBC) to cable providers like Comcast (Nasdaq: CMCSA) and Cox (NYSE: COX) -- not to mention from Time Warner's high-speed cable Internet operations.

If the online advertising market does recover, as is widely expected in 2004, AOL may indeed see a reversal of fortunes in the coming months. Even so, watching those subscriber numbers continues to be a major concern, though, as the company attempts to retain customers, as well as convert the narrowband customers to the broadband arena.

Today, it appears that investors were hoping for a little more proof, and a little less promise. Time Warner shares dropped as much as 4% in Wednesday's trading session.

Is 2004 the year for Time Warner and the beleaguered AOL to turn around? Talk it out on the Time Warner discussion board.

Alyce Lomax welcomes your feedback via e-mail.