Internet service providers Earthlink Networks Inc and its soon- to-be blushing bride Mindspring Enterprises Inc both reported their third quarter results yesterday morning, their last as separate companies, and both reported negative bottom lines swollen by heavy marketing costs. Nevertheless, excluding all the kinds of things that companies like to exclude, such as amortization charges for customer acquisitions, MindSpring’s positive $0.05 per share was two cents better than expected and Earthlink’s negative $0.42 was one cent better than expected, based on First Call’s average estimates.
Last month the two companies announced a merger to try to grab the coattails of the number one consumer ISP, America Online Inc. Even combined, the two companies only have 2.9 million customer between them as of September 30, compared to AOL’s 19 million, but they insist that their market is that of AOL graduates – those that have tried the services and now want more of a pure ISP, rather than a hand-holding online service. The acquisition is expected to close in the first quarter 2000.
The new company will be called Earthlink, but will be based in MindSpring’s Atlanta, Georgia headquarters, reflecting that it considers Earthlink to have better brand recognition. During the third quarter Earthlink continued its very aggressive branding pushing, whereas MindSpring says it has retrenched into three or four markets with TV ads and pulled back most of its branding efforts as there is little point pushing a brand that will largely disappear in the new year.
Earthlink reported third quarter net losses of $124.3m, or $3.84 a share, up from losses of $71.9m, or $2.53, in last year’s third quarter. The increase is largely due to increased marketing costs, which were $38.3m in the quarter, and are on course to rise to about $55m in the current quarter, according to the company. Revenues rose sharply, up 80% to $89.6m in the quarter against the same time last year. It added 231,000 net new members to take it to 1.57 million at the end of the quarter. That’s an increase of 17% on the previous quarter.
MindSpring’s revenue growth was even sharper, but its subscriber growth no where near as healthy, though. It recorded revenues up 207% at $88.2m and subscribers up 5.6% at 1.30 million. Net losses in the quarter were $10.8m, against profits last time of $4.0m. It’s marketing costs were $22.4m in the quarter.
Both companies have spent quite a lot of time and money over the past few months trying to ensure that the hold-times for callers into their customer services and technical support centers are as short as possible, though Earthlink was hampered slightly by the late opening of a new center in Sacramento, California, which is causing wait-times to be longer than expected. The center is now due to open in mid-November, about a month later than planned.
Earthlink management says it does not believe that the 28% that Sprint Corp owns in Earthlink will be counted among the internet properties Sprint is likely to have to sell in order to complete its acquisition by MCI Worldcom Inc, though that decision is ultimately down to the Department of Justice. MindSpring closed down $0.875, or 3.2% at $25.81250, while Earthlink finished yesterday down $1.0625, or 2.5% at $41.6875.
