AOL - Update

David Cassel (
Wed, 16 Oct 1996 18:10:05 -0700 (PDT)

"AOL is as much about accounting technology as it is about computer
technology," Allan Sloan wrote in Newsweek.  They've spent hundreds of
millions marketing the service--including over 100 million floppy
disks--but the $300 million they spent is amortized over two years--it
isn't counted when AOL calculates its profits (10/24/95).  "The income
statement in a company which capitalizes expenses to this
basically meaningless," one analyst wrote last month--pointing out that
70% of AOL's earnings per share through last March came solely from
extending the amortization period from one year to two years. 

And even then AOL reported a $33 million loss for the fiscal year (which
ended in June). Prodigy and CompuServe were owned by parent companies,
which wouldn't condone the same slash-and-burn marketing ("We consider our
earnings strong," CompuServe's controller told Forbes.  "We didn't want to
taint them or dilute them by following AOL's accounting convention.") And
that article--which was titled "What Profits" (10/24/94)--came at a time
when AOL was only spreading marketing costs over one year. 

Today AOL announced that the money spent blanketing the airwaves with
"Jetsons" ads will cost $100 million--and it will *not* be amortized.  If
that's true, AOL's 1996 profits will bump up against a $100 million
debit--at a time when they're slashing subscriber fees and adding just a
few hundred thousand members each quarter. 


Bill Razzouk, the Chief Operating Officer AOL fired after 4 months,
received severance benefits contingent on his not speaking to the press. 
But AOL filed new securities documents which give the figures.  The
48-year-old received close to a million dollars in salary, plus 65,000
shares of stock which, even with Friday's low close, were worth $1.6
million. "He also received options to buy 75,000 shares," the Washington
Post reported Monday--but "If Razzouk hasn't exercised them, they probably
would be worthless at the moment, because AOL's stock has dropped sharply
since they were issued."  (One investor complained that AOL's stock price
was lower than her monthly bill.)

Jean Villanueva told the Washington Post her "pressing family concerns" 
were...spending more time with her children.  The departing Corporate
Communications head said that "personal matters as they relate to Steve"
would not be commented on.  (She's also in the process of completing a
divorce.) Harsh criticism of Villanueva came from AOL's biggest
boosters--their Motley Fool stock pickers--who wrote Monday that AOL's
"weak press efforts of late...have had a great deal to do with the poor
performance of the shares,"  calling them "a potential side-effect of the
blossoming romance".  The twenty-somethings' portfolio is heavily vested
in AOL stock, which fell 67% from its May level. 

"Two kids became our No. 1 personal finance providers," Ted Leonsis told
the New York Times magazine last December.  "Two kids!" 

        AOL Watch web page -