An article in yesterday's Business section mischaracterized a comment by America Online Inc. official Mike Kelly about the planned merger of AOL and Time Warner Inc. Kelly predicted that the new company's earnings before interest, taxes, depreciation and amortization would grow 30 percent a year, a rate similar to that of such companies as Microsoft. (Published 01/21/2000)

America Online Inc. reported record earnings of $271 million, or 10 cents a share, for the last three months of 1999--double the results a year earlier. But among Wall Street analysts yesterday, the news was almost lost in the continuing commotion over the AOL-Time Warner merger.

AOL beat analysts' estimates by a penny per share with its fiscal-second-quarter earnings, something AOL officials attributed to an increase in holiday advertising and e-commerce sales and a gain of 2.2 million new subscribers during the three-month period. The online company had earned $115 million (5 cents) in the same quarter in 1998.

Revenue for the most recent quarter totaled $1.6 billion, a 41 percent gain from $1.1 billion in the 1998 quarter.

"This is an exciting time for both America Online and the interactive medium," said chief executive Steve Case in a conference call yesterday with financial analysts.

But the stock experts focused on the merger, announced just 10 days ago, expressing "fear" and concern about the combined company's plans for high-speed Web access, advertising and price changes.

AOL executives sought to reassure investors who had pummeled the stock immediately following the merger announcement because of worry that the online pioneer's marriage to blue-chip Time Warner would weigh down AOL's highflying stock.

AOL President Bob Pittman, who will be co-chief operating officer of the combined AOL Time Warner, said the unprecedented merger should be viewed as accelerating the growth of the combined stock.

"Traditional measures come short of new paradigms," he said.

Chief Financial Officer Mike Kelly said his calculations show that the growth of the combined companies' stock would be 30 percent a year, similar to stock gains at established technology companies such as AOL rival Microsoft Corp.

"They took every opportunity at every turn to highlight and stress the benefits from the merger in living color. Give them half a chance and they flipped a question over and said, "That's another benefit of the merger,' " said Ulric Weil, senior technology analyst at the Friedman, Billings, Ramsey Group in Arlington.

"I don't blame them," Weil added. "The stock has been under pressure because people misunderstood or didn't understand the benefits . . . and management knows it and wanted to straighten it out for the record."

Despite some investors' nervousness about the merger, analysts say it is an overnight solution to what many had perceived to be AOL's major weaknesses: its late entry into the broadband market, its limited links with media companies, and its weak foothold in emerging Internet markets in Latin America and Asia.

"We are suddenly a global player," Case said, "with a far different kind of heritage, and are far more likely to engender the trust of key officials."

Shares of AOL, which had fallen 18 percent from Jan. 10 through Tuesday, rebounded $3.75 to close at $64.87 1/2 yesterday in anticipation of the strong earnings report.


(This graphic was not available)