EarthLink Networks reported a net loss of US$4.8 million before charges on revenues of $37 million for its second quarter on Wednesday, but executives at the fast-growing Internet service provider were glowing.
They ended the quarter with $138 million in cash, 210,000 new members, and -- though their company still isn't making money -- trimmed their losses for the seventh consecutive quarter.
The quarter's loss was equal to 39 cents a share, considerably less than the 48 cents a share loss estimated by analysts consulted by Zacks.
EarthLink President and CEO Garry Betty emphasized, in his lilting Atlanta drawl, that the quarter ending 30 June was a "record-breaker." Revenue rose 29 percent from the first quarter, and was double last year's $18.8 million. Net losses shrank considerably from the $6.4 million of the first quarter, and $7.75 million in the second quarter of 1997.
Analysts have forecast that EarthLink will hit break-even by year's end. Betty told CNBC earlier this month that he expected to see a profit in early 1999.
Some of this quarter's good news came from the conclusion of a deal between EarthLink (ELNK) and Sprint (FON) to combine their ISP services.
About 130,000 of EarthLink's new members and $24 million in cash came from the Sprint deal -– as did charges of $5.8 million for the amortization of good will and a $1.4 million one-time charge for the transaction.
In one three-day weekend in June, EarthLink's 90 IT staffers –- and a couple of bands in the parking lot for inspiration -- moved all 130,000 Sprint subscribers over to EarthLink. And EarthLink's overall churn rate managed to shrink to 3.3 percent in the second quarter from 4 percent in the first quarter.
EarthLink also managed to raise $107 million in a secondary offering and sign up 80,000 of its own new members in the quarter -– leaving it in sixth place among ISPs. With 710,000 subscribers (up from 500,000 last quarter), it follows America Online with 11 million, the Microsoft Network with 1.87 million, CompuServe with 1.4 million, AT&T with 1.1 million, and Prodigy with 790,000.
Shares in EarthLink gained $3.38 to close at $77.50 on Wednesday.
Betty wasn't willing to say what the company might use its vast cash reserves for. "We're holding onto it -- we have no plans right now for how to spend the cash," he said during a conference call, although he hinted that some would likely go toward marketing.
"EarthLink has been one of the most marketing-savvy ISPs we've seen," said Ross Rubin, an analyst at market researcher Jupiter Communications. The company has partnered with Sam's Club and Discover Card, among others, to get its name in front of consumer eyes. In September or October, Sprint will begin pitching EarthLink to its customers.
"We see the opportunity to be the No. 1 player in the pure access space," said EarthLink founder and chairman Sky Dayton in an interview. Distinguishing the Pasadena, California, company from most of its bigger competitors, Dayton said EarthLink was not interested in becoming a portal site or a content aggregator like AOL or CompuServe. "We are a partner to portals," he said.
