91.1 F
San Fernando
Thursday, Mar 28, 2024

Analysts Down on United Online After Comcast Deal

Analysts Down on United Online After Comcast Deal Corporate Focus By CARLOS MARTINEZ Staff Reporter Despite some encouraging December quarter numbers, Westlake Village-based Internet service provider United Online Inc., formerly NetZero Inc., is having a hard time convincing analysts that the acquisition of troubled Juno Online Services last September was worth it. The company, formed in September when NetZero acquired Juno, is still trying to demonstrate that its business model will be successful, said David Kathman, an equities analyst with Morningstar Inc. “There’s a lot of skepticism about the chances that they can turn things around,” Kathman said, referring to the long string of losses that have dogged the company since it began operating as NetZero in 1998. United’s struggles to get paying customers likely received a boost last week when it agreed to provide high-speed Internet service on Comcast Corp.’s cable television system. “It’ll be a challenge for them to get into the high-speed Internet business, but cable is a good place for them to start,” said Mark Kersey, an analyst with technology consulting firm ARS Inc. The Feb. 26 deal with Comcast came about after bankrupt At Home Inc. agreed to continue its high-speed Internet service through Feb. 28, allowing United Online to snap up the contract to serve Comcast’s 8.4 million subscribers. Although terms of the deal were not disclosed, United CEO Mark R. Goldston told reporters last week that the pact will allow United to earn $4.20 to $4.40 per high-speed customer, or about the same as it collects from its dial-up subscribers. For the quarter ending Dec. 31, 2001, the company reported a net loss of $15.7 million on revenues of $48 million, compared to a net loss of $43.4 million on $16 million in combined revenues of the two companies prior to the September 2001 merger. Company officials were unavailable for comment, but Goldston said in a statement that the company’s efforts were paying off in increased subscribers during the quarter. “As we grew our pay subscriber base by 17 percent sequentially, billable services revenues expanded to 85 percent of total revenues,” he said. The company, which is slowly abandoning its free Internet service, is adding more pay subscribers to its premium service, Goldston said. During the December quarter, the company added 214,000 new subscribers to its base of 1.46 million paid subscribers, which is still only a small segment of its 5.6 million total subscribers, the bulk of which use the free service. The subscriber base has shrunk by 6 percent since September as the company continues to move away from the free service. United’s strategy has been to market the NetZero brand as a free service, while pushing Juno as a pay service. But Morningstar’s Kathman said the strategy has been slow to take hold. “It’s very difficult to give away a service, then ask people to pay for it,” he said. The slow pace of attracting new subscribers while losing scores of old ones used to a free service was expected, Kathman said, but the company appears to be making progress. “They’ve eliminated a lot of expenses and streamlined things, so there is room for optimism,” he said, noting that the company finished the year with $132.4 million in cash, enough to sustain its efforts to become a full-fledged pay service through next year. Despite flaccid advertising sales, the company plans to continue to market its pay service as “no frills.” The premium service allows users to pay a monthly $9.95 fee without the free service’s floating banner ads. United said it expects to add between 80,000 and 100,000 new subscribers in the current quarter, with projected revenues rising by about 2 to 3 percent from the December quarter. For the current quarter, United projects a pro forma loss, before charges and other items, of $4.8 million to $6 million. The stock closed at $6.87, after jumping from $5.81 to $6.51 on Feb. 26, the day the Comcast deal was announced.

Featured Articles

Related Articles