America Online's sales top $1 billion Company apologizes for worldwide service blackout


August 09, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF Bloomberg Business News contributed to this article

America Online Inc. said yesterday that it has become the world's first online service to surpass $1 billion in annual sales, as the company reported earnings above Wall Street estimates the day after a worldwide service outage sent 6 million of its customers back to phones, faxes and snail mail for a day.

AOL said its sales for the year ended June 30 were almost $1.1 billion, nearly triple its fiscal 1995 sales of $394.3 million. And its reported fourth-quarter profits were $21 million, or 19 cents a share, beating estimates that, on average, said the company would earn 17 cents.

AOL said the final number was 14 cents a share, after a $5 million charge to settle a lawsuit by customers who claimed that the company's billing practices fraudulently overstated the amount of time customers spent online.

Shares fell $1.50 to $33.375 in Nasdaq trading before earnings were released. After the announcement, shares fell to as low as $31.875 in after-hours markets, as analysts said the company's revenue growth fell short of estimates even though profits were at or above most projections.

"Revenue is really the problem," said Lisa Thompson, an analyst at Unterberg Harris in New York.

America Online said it added 700,000 customers during the fourth quarter, bringing its worldwide total to 6.2 million. While the total is up from 3 million a year ago, the growth was slower than in the third quarter, when AOL added 905,000 subscribers.

Stephen M. Case, AOL's chairman and chief executive, has said the slowdown happened because of a previously planned lull in marketing efforts ahead of the company's launch of new software and pricing policies in July. Yesterday, the company said it will add "several hundred thousand" customers by September and plans to have 10 million by late 1997.

Robert Seidman, editor of Seidman's Online Insider and editor-at-large for NetGuide magazine, said he had expected growth to slow during the quarter. "Earnings were pretty much on track, he said.

However, Seidman and others were still more interested in the collapse that Dulles, Va.-based AOL finally fixed at 10: 45 p.m. Wednesday. The company apologized to its users in an electronic letter from Case.

"I would like to tell you this sort of thing will never happen again, but, frankly, I can't make that commitment," Case wrote to subscribers. "We are building a new medium and breaking new ground."

The company presented a somewhat more brave face in its statement for press and Wall Street consumption, saying the outage stemmed from "a coincidental series of sequential events that will most likely never occur again [and] human error was a factor in the events that led to the interruption."

The company said it had been simultaneously doing maintenance at its network backbone operations and in the separate computer system that holds the software and information content that consumers actually buy.

At 5 a.m. Wednesday, staffers at the subsidiary that operates the network backbone miscoded the information that directs traffic between the two systems. At the same time, the company was installing switching equipment in its local area network, a repair it does one or two times a month.

When the people installing the switches finished, they tried to start the main system again after a two-hour planned outage between 4 a.m. and 6 a.m. and couldn't do it. And, because the main AOL system was down for maintenance when the mistake was made in the network backbone system, the mechanism that usually finds network errors didn't sound an alarm.

"When AOL tried to bring its system back up, it appeared that the installation of the new switches was unsuccessful, because they were not functional," the company said.

"Mistakenly, we attributed the problems to the maintenance and installation procedures we had just undertaken." The company said it did not figure out what had happened until late in the day, fixed the problem and reopened the system at 10: 45 p.m.

Pub Date: 8/09/96

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