AOL vs. Netzero Analysis of letters from the chairmen
Netzero (NZRO) and AOL Time Warner (AOL) both operate as Internet Service Providers (ISP). With vastly different business models both companies have arrived at a critical juncture in the life cycle of their respective organizations, merger. While many are aware that AOL and Time Warner have recently merged, far fewer have noticed the quiet union of Netzero and Juno.com. The results of these mergers at both companies have had greatly different results on each.
One simple barometer of how a company will deal with, and what it expects for the future can often be found in the "letter from the chairman" Very often these letters paint a best case scenario regarding future results. However, In the case of AOL and NetZero, at least for 2003, the two companies could not be farther apart. Excerpts from both company's letters from the chairman follow.
Net Zero
"Our commitment to growth, combined with our efficient operating structure, helped position United Online for its outstanding performance this quarter, highlighted by record organic pay subscriber growth and record profitability. We are very pleased with the progress we have made in building our consumer brands and carving out a powerful niche in the marketplace. As a company, we will continue to innovate and invest in opportunities that we believe will grow our business over the long term" (NetZero, 2003).
NetZero seems confident that it can marshal both brand and products for continued growth throughout 2003 and beyond. NetZero might experience even larger returns if the company expanded its current product offerings, and by continuing to locate merger and acquisition opportunities. Nonetheless, NetZero lacks the broad diversification of its business currently enjoyed by AOL. . Even so, AOL has been troubled since its merger.
AOL
"Going forward, the Company’s primary focus will be to compare 2003’s financial results to 2002’s reported financial results, without adjusting for certain items such as merger and restructuring related charges that were previously excluded for comparative purposes. As the impact of such items was to decrease 2002’s reported results and, in certain cases, such items are expected to continue to adversely impact 2003 Free Cash Flow " (AOL, 2003).
Despite the gloomy prospects for 2003 cited in the letter, AOL has many significant strengths. After all, AOL Time Warner is one of the world's leading media and entertainment companies, whose businesses include interactive services, cable systems, filmed entertainment, television networks, music and publishing.
AOL could likely benefit by lowering the price of its (ISP) related services. A price reduction in this area might serve as a productive engine for garnering subscribers, and could help it stem the loss of existing subscribers to companies like NetZero who
As it stands today, Netzero expects a 45% increase in revenue for 2003, while AOL is expecting its revenues to be flat. Additionally AOL has warned that it expects ad revenues to be down at all of its units including [next page]