This strength in advertising sales is important because many investors feared a slowdown due to cash crunches at dot.com companies, which used to be big spenders. However, similar to Yahoo!, AOL's high traffic is making wealthy, long-established companies advertise or sell products (for a fee) on AOL. Coca-Cola, Target Stores, Office Depot, Pizza Hut and many other leaders are dishing out money to AOL. (By the way, Steve Case worked at Pizza Hut.)
The other main concern was subscriber growth. America Online added 992,000 new net subscribers this quarter. That was well below last quarter's 1.7 million, but above last year's 755,000 in the same quarter. 992,000 new members should be enough to keep the "slow growth" wolves at bay and keep the company's results on par with the financial models that exist at analyst houses.
Like it or not, that's important -- at least in the near term. If analysts are forced to reduce financial estimates, they usually place the blame with the company (rather than admit that they were too optimistic) and they downgrade the stock.
Revenue totaled $6.8 billion in fiscal 2000, up 43%. Advertising and commerce revenue rose to become 28.8% of all revenue, up from just 21.3% last year. Looking at the balance sheet, the company's cash and equivalents ballooned to $2.49 billion from $936 million, and investments rose to $4.2 billion from $2.1 billion. Cash flow from operations rose to $511 million, up 166%. Considering other performance metrics, margins improved across the board:
AOL Margin FY 2000 FY 1999 Gross 49.7% 44.4% Operating 20.3% 9.3% Net 17.8% 15.6%So, looking at the results so far, things are lookin' all right. This Rule Breaker appears to be moving to Rule Maker status. However, the merger with Time Warner (NYSE: TWX) may change this due in part to that company's debt. If you're an AOL shareholder, certainly keep pace with Time Warner, too. Time Warner reported results this week that Fool Brian Lund called mediocre.
We'll call AOL's results "swell." The two boogie men, ad sales and customer growth, can return to hiding under the bed right now because AOL looked strong. We'll have more thoughts on the company following the conference call -- which will set the direction of the stock near-term much more than quarterly results will. (If it acts anything like last time, the stock will drift after these results.) Plus, Motley Fool Research will offer a full update with complete analysis soon.
We close on AOL with this thought: AOL may be somewhat boring and predictable now, but four years ago it was a small company whose survival many people doubted. It was a Rule Breaker. Rule Breakers achieving AOL's magnitude of success are rare, but they do occur -- typically at least a handful each decade. We're always looking for the next big Rule Breakers right here and on the RB discussion boards. We're happy that you're looking and watching with us.
Celera the Drug Company
We've written several times about the possibility of Celera (NYSE: CRA) entering the drug business, including in yesterday's column. Today the stock jumped 12% after Celera's Dr. Craig Venter said, "We are thinking about developing cancer vaccines down the road. We haven't decided whether to do our own clinical trials." Venter suggested that the company would develop drugs for other diseases, too.
The decision on whether or not to develop drugs on its own should arrive in the next two years. The answer rests largely on Celera's study of proteomics. Proteomics is new even to Celera, let alone Wall Street. The only report that I've seen on proteomics is the Fool's Soapbox.com report.
I close on Celera with this thought: We have always believed that this Rule Breaker had open possibilities, otherwise we would not have purchased it. It began by mapping a fruit fly (Amazon began with books). But it may eventually map just about any living thing and it can also go much deeper in its studies of life. Celera can study stem cells, gene cloning, proteomics, and so much more -- moving all the way into drug development for humans, not to mention animals, if it wishes. Celera's evolution should be amazing to watch, whatever successes or failures unfold.
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