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Stock Analyst Update

Time Warner Paints Rosy Picture for AOL Deal

Media giant's strong quarter was overshadowed by discussion of what AOL Time Warner will look like and what direction it will take.

Media giant Time Warner  announced strong results Wednesday for both the fourth quarter and 1999 as a whole, posting its first full year of net profits since the merger of Time and Warner a decade ago.

Net income per diluted share was $0.62 for the quarter and $1.42 for the year. Basic operating income for the quarter was $0.20 a share, blowing past the consensus estimate of $0.16. The strong performance was fueled mostly by the cable and publishing divisions, which offset a lackluster year for the music and filmed entertainment segments.

As expected, a major focus of the earnings announcement and the subsequent conference call was CEO Gerald Levin's comments on Time Warner's planned merger with America Online . Levin projected that about 40% of the combined company's revenue will come from subscriptions (including those of AOL's online customers and Time Warner's cable and magazine subscribers), 20% from advertising and e-commerce, and 40% from content. Levin predicted that of the three revenue baskets, advertising and e-commerce would grow the fastest because of the huge audience the combined entity will command.

Levin also predicted that the combined company would grow its EBITDA (earnings before interest, taxes, depreciation, and amortization) by 30% in 2001, though he refused to give a number for longer-term growth rates. He did not address the question of revenue growth for the combined company, though it will certainly be lower than the 50% annual growth AOL has enjoyed in recent years. Still, the fourth quarter's strong results should ease fears that Time Warner will drag down its partner too much.