America Online, Inc. Reports FY98 Second Quarter Net Income of $20.8 Million, or $0.17 Per Share

February 10, 1998

Advertising/Electronic Commerce and Other Revenues up 87% to $108.8 Million Membership Grows By 1,267,000 in Quarter to over 10.7 Million DULLES, VA, February 10, 1998 - America Online, Inc. (NYSE:AOL) today reported net income of $20.8 million, or $0.17 per share on a diluted basis for its fiscal 1998 second quarter ended December 31, 1997. Revenues for the quarter increased 45% over the same quarter last year to a record $592 million. These results compare to a net loss of $129.1 million or $1.37 per share on revenues of $409.4 million in last year's corresponding quarter. Net income and revenues for the six-month period ending December 31, 1997 were $39.9 million, and $1.11 billion respectively, compared to a net loss of $482.8 million and revenues of $759.4 million in the corresponding period in fiscal 1997. Service and Other Revenue Growth Drive Improved Performance Membership growth during the quarter, as well as continued advertising and electronic commerce momentum during the holiday shopping season, contributed to AOL's improved results in the December quarter. The results were also bolstered by efficiencies in marketing spending and other expense management. Steve Case, Chairman and Chief Executive Officer of America Online, stated, "AOL added almost 1.3 million new members this quarter, and members increased their usage, demonstrating that we're becoming more and more a part of people's daily lives. During the quarter AOL continued to expand its international reach, launched compelling original content and made significant progress in developing advertising and commerce revenues." Mr. Case added, "Providing the best possible online experience to our members is always our top priority. Over the past year we have invested more than $700 million in building out our network infrastructure, expanding our customer service capabilities, and developing next generation 4.0 software, while also enhancing our reliability and substantially increasing our capacity to handle growing demand. We took important steps to address major public policy issues affecting the development of the interactive medium, and played a pivotal role in convening the historic Internet Online Summit: Focus on Children. We're also aggressively combating junk e-mail in the courts and through technological solutions." AOL said its quarterly increase of 1,267,000 million new members worldwide slightly exceeded the growth of its previous best quarter, a year earlier, when the Company introduced its flat-rate pricing plan. Membership reached over 10.7 million on December 31, and surpassed 11 million on January 20. The Company's marketing expenses during the fiscal 1998 December quarter were reduced to $96.8 million, or 16.4% of revenues, from the prior year period's $151.8 million or 37.1 % of revenues. The Company also said that it improved its cash and short-term investments since September 30, 1997 to a total of $518.4 million at December 31. This includes net proceeds from the Company's sale of $350 million subordinated convertible debentures. Net cash provided by operations for the December 1997 quarter was $75.2 million. Service Revenues totaled $483.2 million, a 37.6% increase over the fiscal 1997 second quarter total of $351.2 million. Advertising/Commerce and Other Revenues amounted to $108.8 million, compared to $58.2 million in last year's corresponding quarter. Additionally, the Company said its backlog of advertising and commerce contracts rose $96 million in the quarter to approximately $320 million at December 31. Member usage also grew significantly during the quarter, with average daily usage reaching 41 minutes per member, up from 21 minutes in the same quarter last year. Simultaneous usage of the service during peak periods grew to more than 560,000 during the quarter, almost tripling peak usage of a year ago, and has since grown to more than 640,000. The Company attributed the rise in usage to the increasing value of the service to its members and the popularity of its new channel line-up introduced in October. Cost of Revenues increased to $386 million during the quarter, compared to $261.9 million in the December 1996 quarter. The increase is due primarily to higher data communications charges resulting from the dramatic growth in members' usage, and investments in network expansion to improve quality, along with increased customer service costs. AOL Usage and Value Grows Bob Pittman, President and COO of AOL, said: "AOL's brand momentum continues to bring the mass market online, and the additional time our members are spending on the service reflects its growing value and usefulness. Members are now paying on average approximately $0.80 per hour of usage, compared to approximately $2.40 per hour just before we instituted flat-rate pricing. "As AOL becomes increasingly embedded in our members' daily lives, we are more and more attractive to content providers and marketers. During the quarter we continued to forge long-term partnerships to provide our members with an array of discounts and other benefits. Our long distance savings plan with Tel-Save, for example, has proven to be enormously popular, with more than 150,000 new lines already signed up." Mr. Pittman continued: "We are taking significant steps to expand the AOL brand into new areas. We extended our 'AOL Anywhere' strategy during the quarter through AOL NetMail, which enables members to send and receive e-mail from anywhere on the Web, and announced agreements to offer the AOL Instant Messenger service over several other platforms. The acquisition of CompuServe furthers our multi-brand strategy and extends our international reach." During the quarter, AOL announced long-term, multi-million dollar agreements with American Greetings, Preview Travel,, and Cybermeals. Barnes & Noble renewed and significantly expanded its relationship with a four-year, $40 million agreement for extensive placement and visibility throughout the AOL service. The Company also reported that its online holiday shopping season results more than doubled over the same two-week period last year, attracting a large customer base opting for a broad range of consumer products. AOL's increased audience reach is reflected in the fact that the service is now handling, each day: 26 million e-mails to 90 million recipients; 200 million instant messages; Nearly 60 million stock quotes; More than 700 million Web hits; More than 8 million hours of usage. AOL continued to expand its network to meet demand, making available over 30,000 more modems in each month during the quarter. The Company currently has approximately 700,000 modems available to members. In addition, AOL successfully completed broad deployment of x2 and K56flex technology during the quarter - now available on some 80% of AOLnet access numbers. To continue making the interactive medium as convenient and easy-to-use as possible, AOL introduced its New Channel Line-up during the quarter - building the channels to take full advantage of the Company's new AOL 4.0 software as it becomes available over the coming months. AOL International continued to build the Company's worldwide position, surpassing the one million member mark in December. The completion of the WorldCom/CompuServe transaction establishes AOL/CompuServe as the leading pan-European Internet online. AOL Studios Launches New Brands, Brings Digital City To New York Ted Leonsis, President of AOL Studios, said, "We launched tremendous new properties this quarter in Electra and Entertainment Asylum, brands designed to capture cyberspace's most rapidly growing audiences, women and families. We continued to attract more users to content like Love@AOL, Hecklers Online, Thrive and The Hub - that are among the best-loved brands on AOL; acquiring Real Fans, one of cyberspace's top sports destinations; and extending our properties to new platforms. Studios' properties generate more than 750 million page views per month and account for 25 % of AOL content usage." Leonsis continued, "Our national-local mix continues to flourish as we add new communities to our local content service. Late last month, we launched Digital City New York, and it has already surpassed one million page views per day." In October, AOL Studios introduced Entertainment Asylum on AOL and the Web, the comprehensive one-stop interactive resource and community for entertainment industry: news, movies, key facts and figures, television, scoops, and listings. AOL Studios also launched Electra, a dynamic new interactive destination for women, who make up nearly half of AOL's 11 million members and are the fastest-growing segment of all consumers going online. In its first month, Electra generated three million page views. AOL Studios also continued to develop cross-platform distribution opportunities for its properties. In October, its Greenhouse Networks announced that it would provide original content including Thrive, Hecklers Online and Real Fans for the new version of Microsoft's Web browser. In December, ABC television aired "The Online Adventures of Ozzie the Elf," an animated holiday special produced by AOL Studios and based on its "Santa's Home Page" property.

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