AOL Time Warner expects rough ride in 2002

AOL Time Warner is bracing itself for a tough 2002, with no expectation that the economy will recover any time soon. It's also warning that advertisement revenues will shrink in the first six months of the year.

The company's preliminary results for 2001 were well below its predictions made at the start of the year, growing just five per cent to $38bn, against a predicted $40bn.

The shortfall was more a consequence of the group's optimistic predictions last year rather than poor performance, according to Richard Parsons, who is set to become CEO when the incumbent Richard Levin steps down in May.

It's a mistake he's not intending to repeat. The group made a gloomy forecast for next year's advertising revenue - it expects revenue to be "flat to down" over 2002, with a decline likely over the first six months of the year.

This grim forecast from the world's largest media company will disappoint some industry watchers, many of whom will be crossing their fingers for good news from the market leader later in the year.

But the markets were expecting the downbeat tone of the announcement and AOL Time Warner shares actually climbed slightly in after-hours trading.

The group is still suffering from the fall-out of the dot-com boom and bust. The general fall in media stocks hit the share values of both AOL and Time Warner hard in the period from January 2000 (when the merger was agreed) to 2001.

This has to be reflected in its financial results, and the group will take a $40bn to $60bn charge on its accounts for the first quarter of 2002 - effectively acknowledging that a black hole larger than the gross national product of Peru has appeared on its balance sheet. It is already being described as the largest charge in corporate history.

The company has also confirmed it will buy out German media company Bertelsmann's 49 per cent stake in AOL Europe for $6.75bn.