America Online profits up 255 per cent

America Online (AOL) has posted record profits for its first quarter for fiscal 1999. Its revenue for Q1 ending 30 September was $858m, giving the Internet service provider (ISP) a net profit of $68m - a 255 per cent increase over the same quarter last year.

The company said the growth is a result of increased revenues from advertising, electronic commerce and new users. AOL gained nearly one million new subscribers to its services during the three-month period. Meanwhile, advertising and ecommerce revenue increased by 133 per cent year-on-year to $102m.

AOL has been making a loss for several years, but as William Reeve, analyst at Fletcher Research pointed out, profitability has not been its main focus. "Gaining a critical mass of users and then turning its attention to making money out of those subscribers was more important," he said.

The Internet service and content provider has a particularly strong presence in the US. Around 11 million of its 13.5 million worldwide users are based in the States. And although its presence in Europe is growing, it faces greater competition here.

Reeve said: "It can afford to spend money on getting new subscriptions because the profitability of having those customers is quite high. AOL knows that the average customer will stay with them for around 5 years." He added that a strong customer base also gives it more power when seeking advertising revenue.