Analysts concerned about Q1 earnings prospects
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NEW YORK (CBS.MW) -- AOL Time Warner shares fell 5.3 percent Wednesday, after hitting a session low of $20, as Wall Street showed its concern over the company's upcoming first-quarter earnings report.
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Shares dropped $1.15 to $20.70, a decline that marks the lowest level that the AOL stock has seen since November 1998, or 41 months ago, when it touched $16.04.
Credit Suisse First Boston arranged a sale of 18.4 million shares, with a value of $368 million, of the company's stock for one seller, according to CNBC. CSFB spokespeople didn't return a call seeking a comment.
"It's panic-selling," said Michael Gallant, an analyst with CIBC World Markets in New York. "People are worried that another shoe might drop and concluding that there is no reason to buy the stock ahead of the first-quarter earnings announcement."
The stock had volume of more than 80 million shares.
AOL-Time Warner was created in January 2001 when America Online and Time Warner merged. The company expects to report its first-quarter earnings later this month.
AOL doesn't comment on stock market movements, said spokesman Edward Adler.
Wall Street analysts say it's doubtful that AOL Time Warner (AOL:
news,
profile), the largest media and Internet company, can sustain growth in its flagship America Online unit.
Jessica Reif Cohen, a Merrill Lynch analyst, said the trend for growth at America Online appears to be "even weaker than anticipated."
Added Jefferies & Co. analyst Frederick Moran: "The stock moved today on fears surrounding the state of the America Online unit and the first-quarter results. I want to see proof of an increase in subscribers and advertising in America Online."
On Tuesday, AOL Time Warner moved to boost the worrisome division by appointing co-chief operating officer Robert Pittman to manage the problematic online division, replacing Barry Schuler, who was reassigned to head a new digital-media division. See full story.
Nevertheless, Todd Salamone, research director with Schaeffer's Investment Research in Cincinnati, said analysts remain too bullish on the company's prospects for the stock to move back up.
"Thirty-three analysts follow AOL Time Warner and, right now, 28 have 'buy' (investment) ratings on it and five analysts are 'neutral,'" Salamone said. "None has a 'sell' sentiment on the stock, though."
Salamone said: "I would like to see less speculative buying in the stock. Until we see investors throwing in a white towel on this stock, you won't see it improve. I don't see a bottom in the technology sector, in general."
While giving a speech in Chicago, Pittman tried to calm panicky investors. Afterward, Pittman conceded that the America Online division has real problems, primarily advertising sales, but emphasized that it also has "real strengths that people call problems because they don't understand them."
Pittman stressed that America Online's subscription growth is "going very well" and added that "everybody has all sorts of threats they can imagine, but none of them have materialized."
Wall Street has questioned whether the America Online division can sustain its strong level of growth in the near term. It now boasts some 32 million customers but, lately, its growth has slowed, underscoring woes in the U.S. economy and a possible fear that America Online could be approaching a kind of market saturation in this country.
Further, analysts are skeptical that America Online's current technology will fit in an ever-changing world that will likely stress broadband services.
For now, America Online is regarded as a problem inside the giant company, whose Time Warner assets include Time Inc. magazines, Home Box Office, CNN and Warner movie and music units.
"Advertising trends at the AOL segment are increasingly poor and the business unit is facing a number of strategic and secular issues," Reif Cohen said. "Chief among them is the transition to AOL broadband and accompanying open-access negotiations with cable companies, slowing narrowband business and marked deterioration in online advertising."
Pittman, while characteristically upbeat, seems to have grown weary talking about the advertising market and when it might spring back to form.
Noting that there are plenty of growth possibilities for the online business, Pittman added: "Boy, is it feeling the ad market. And this, too, shall pass."
Jon Friedman is media editor for CBS.MarketWatch.com in New York. William Spain in Chicago contributed to this report.