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Last Updated: Wednesday, 23 April, 2003, 15:52 GMT 16:52 UK
AOL offers rare note of cheer
AOL's internet division is starting to revive

Media conglomerate AOL Time Warner has unveiled a rare piece of positive news, reporting a rise in profits that beat the modest expectations of Wall Street.

The world's biggest media company, which is struggling to gain credibility among investors after a 2000 merger that many say was a mistake, posted a first-quarter net profit of $396m (251m).

The profit comes after last year's loss of $54bn, the worst performance in corporate history. The loss was mainly attributed to a massive writedown in the value of AOL assets.

The company's shares bounced by more than 3% on the news, as investors started to hope that the company's troubles may not be as deep as some had feared.

Performance at the once-mighty AOL internet division, which was recently written off as near-worthless by investors, was seen as especially encouraging.

Signs of hope

The results come soon after the first big asset sale by AOL Time Warner, a disposal of its stake in cable television channel Comedy Central to Viacom for $1.2bn.

This appears to me to be the quarter that AOL started to act rationally at its online unit
Jordan Rohan
SoundView Technology Group

The sale, although far from decisive, given the firm's $27bn in debts, was seen as an indication that management was ready to tackle AOL's problems.

In the meantime, underlying performance in many parts of the company was extremely strong, notably sales of DVDs and other merchandise from the Lord of the Rings movie franchise.

At AOL's internet division, which has suffered from the advertising slump and slower-than-expected growth, stringent cost-cutting helped produce an 18% rise in pre-tax profits.

"This appears to me to be the quarter that AOL started to act rationally at its online unit," said Jordan Rohan of SoundView Technology Group.

Problems, problems

The company's problems are still far from over.

Although there are indications that the advertising slump could be over, the company faces extremely heavy costs in many divisions, and is still being investigated by the Securities and Exchange Commission for insider trading.

Analysts say it needs to complete several large disposals before its finances can be adjudged once again in healthy shape.

And there is no let-up in the pressure for a demerger, which many insist is the only way to unlock the value in the firm's many well-known brands.

When internet firms were performing strongly in 2000, AOL bought Time Warner for $180bn, but the combined company is worth far less than either was individually before the merger.

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