Media stox socked by AOL’s drop

Advertising woes cue Wall Street fall

NEW YORK — Shares of AOL Time Warner led media shares lower Thursday as one analyst anticipated an advertising squeeze at America Online.

Lehman Brothers’ Holly Becker cut first-quarter revenue and cash flow estimates for AOL and its corporate parent in her second bearish note on the company in two weeks. On March 12, she blasted AOL for not adding subscribers fast enough.

“We continue to believe that the single biggest risk to AOL Time Warner’s near-term earnings is the AOL division, and advertising in particular,” she said.

After a rough 2001, many media players and Wall Streeters have recently pointed to early signs of an advertising recovery. But Becker said AOL’s ad numbers were inflated last year by a surge in inter-company advertising and long-term portal deals that “are beginning to melt off.” Ad revenue started to falter late last year, and “we think several difficult quarters lie ahead,” she said.

AOL Time Warner shares fell 2.18% to $24.65, off their low for the day. Disney eased 1.54% to $23.63, and Viacom fell 1.34% to $50.80. Fox Entertainment bucked the downturn, rising 1.48% to $24.63. The studio’s “Ice Age” hit pay dirt last weekend, and Oscar buzz surrounds “Moulin Rouge.”

Becker predicted AOL’s advertising will drop 26% to $535 million in the current quarter, on total revenue of $2.3 billion and cash flow of $449 million.

She sees AOL Time Warner posting $9.4 billion in revenue (up 0.8%) on $2 billion of cash flow (up 1.6%). For the full year, Becker figures the conglom will report about $41.4 billion in revenue and $10 billion in cash flow.

AOL, which was slammed by Wall Street for over-optimistic earnings forecasts, has been trying to tone down expectations. But Becker said she had hoped the latest estimates provided by the company represented a conservative “worst case scenario” and was disappointed to realize that wasn’t the case. Some of her revised numbers are in line with company guidance, some are lower.

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