Merrill Lynch on Monday issued a report giving America Online's parent company Time Warner a "buy" rating, in the wake of the company's fourth-quarter results, released last week. Merrill Lynch also
raised its estimate of AOL's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to $1.93 billion for 2005--up from 1.762 billion last year.
Balancing AOL's renewed
advertising strength with its continuing loss of dial-up subscribers, Merrill Lynch Analyst Jessica Reif Cohen wrote: "margins should remain resilient over time as higher-margin advertising revenue
replaces subscription revenue." Overall, AOL's fourth-quarter revenues rose 1 percent to $2.2 billion. As expected, AOL's ad revenues for 2004 came to about $1 billion. (See MDN "AOL Closes In On $1 Billion," Dec. 8, 2004
Although AOL continued to lose U.S. subscribers, the rate of
defections slowed to 464,000 in the last quarter--from 646,000 the quarter before. This loss was more than mitigated by AOL's fourth-quarter ad revenues, which grew by 23 percent (excluding
Advertising.com). Search advertising--which accounted for $80 million in the quarter--grew 25 percent, while traditional advertising grew by 13 percent.