AOL Time Warner posts record $54.2bn first-quarter loss

AOL Time Warner, the world's largest media company, yesterday achieved the dubious honour of posting the biggest loss in US corporate history when it announced a quarterly net loss of $54.2bn (£37.4bn). The loss is greater than the annual gross domestic product of Ecuador, Croatia or Bulgaria.

Most of the loss relates to a $54bn write-off of goodwill forced by new US accounting rules, which reflects the dramatic decline in the company's value since AOL bought Time Warner in an all-share deal for $106bn two years ago.

But analysts said that the staggering headline figure essentially acknowledges that the merger between the internet giant and media conglomerate has fallen dramatically short of expectations. "Most analysts will dismiss it and say it's now behind them and doesn't matter because it's non-cash," said Harold Vogel, an analyst at Vogel Capital Management. "But it's an admission of a humongous mistake."

When the deal was announced, the companies had a combined stock market value of $290bn. Today, AOL Time Warner is worth $85bn and the America Online internet unit, promoted as the growth engine at the heart of "new media" giant back in 2000, has seen its sales stall. The division last night reported a 31 per cent fall in advertising revenues in the first quarter as marketing agreements signed at the height of the dot.com boom expired.

Excluding the goodwill charge and other items, AOL Time Warner said its earnings before interest, tax, depreciation and amortisation (Ebitda) rose 3 per cent to $2.1bn in the first three months of the year. Revenues rose 7 per cent to $9.76bn compared with a year ago. Strength in the company's cable systems and film business, which has had recent hits including Lord of the Rings: The Fellowship of the Ring, helped to offset weakness in its AOL internet and music businesses.

Richard Parsons, who takes over as chief executive from Gerald Levin next month, tried to ease investor concerns about America Online's ability to move subscribers onto more lucrative high-speed internet accounts and stem falling advertising sales. "What we have to do now is establish and show the Street that AOL's internet unit not only can grow but will grow at very significant rates," Mr Parsons said.

But the company, home to CNN, People magazine, and television shows such as The Sopranos, nevertheless lowered its forecast for 2002 Ebitda growth to 5 to 9 per cent last night, citing the fall in advertising revenues at America Online. Earlier this year AOL Time Warner was forecasting growth of 8 to 12 per cent.

For the most part, Wall Street already has factored in the loss. AOL Time Warner's shares have fallen 41 per cent this year, partly because the company warned well in advance of the anticipated losses and because of the slowdown in advertising.