CompuServe reduces losses, subscribers go elsewhere

CompuServe has reported a first quarter loss of US$4.1 million, or 4 cents per share, on revenues of $206 million as a result of declining membership worldwide with the exception of Japan. Still, CompuServe says that the results for the first quarter of fiscal 1998 ended July 31, amount to a 'significant reduction of losses.' Analysts polled by First Call were expecting a loss of 7 cents per share.

CompuServe has reported a first quarter loss of $US4.1 million, or 4 cents per share, on revenues of $206 million as a result of declining membership worldwide with the exception of Japan.

Still, CompuServe says that the results for the first quarter of fiscal 1998 ended July 31, amount to a "significant reduction of losses." Analysts polled by First Call were expecting a loss of 7 cents per share.

Until now CompuServe's management had predicted that the company would turn a profit sometime in the third or fourth quarter. But after introducing a new flat-fee pricing option in North America today, the company - which is up for sale - is no longer sure if that goal can be accomplished.

"We have no data points to help us assess in which way the new pricing plan will affect our earnings," a company spokesman says.

Starting October 1, CompuServe users in the U.S. and Canada will get unlimited access to the Internet plus or CompuServe Interactive services at $24.95 per month.

Officials says the $24.95 flat-rate option - which is not expected to be offered elsewhere in the world - is consistent with the company's view that flat-rate pricing below $20 per month is unprofitable for online services.

"We believe the new flat-rate option is an appropriate step as we work to reverse the decline in our US subscriber base during the past year," says Frank Salizzoni, chairman and acting CEO of CompuServe, and president and CEO of H&R Block which owns the online service.

"However, because we cannot predict its impact with any certainty, this new pricing plan may affect our ability to achieve our stated goal to reach or exceed the break-even point in earnings sometime in the second half of the current 1998 fiscal year," Salizzoni says.

In the previous fourth-quarter CompuServe recorded a before one-time charges loss of $12.2 million, or 13 cents per share, on revenues of $208 million.

In the prior-year first quarter, the company lost $17.1 million before one-time charges, or 19 cents per share, on revenues of $209 million.

Earnings before interest, taxes, depreciation and amortisation improved to $27.7 million in the first quarter this year, versus $12.8 million in the fourth quarter last year and $9.4 million in the third quarter of the last fiscal year.

However, compared to the previous quarter CompuServe's revenues fell in the first quarter because of declining membership in the US.

Specifically CompuServe Interactive subscribers in the U.S. total 1,433,000, down 94,000. In the fourth-quarter subscription declined by 127,000 to 1,527,000.

As of July 31, 1997, CompuServe had a total customer base of 5,341,000 subscribers, down from 5,373,000 as of April 30, 1997.

European CompuServe Interactive subscribers stood at 872,000 at the end of the first quarter, compared with 892,000 at the fourth-quarter close. CompuServe Interactive subscribers in other international countries totaled 332,000, compared with 348,000 at the end of the fourth quarter.

Only the company's Internet-only access service Sprynet and its Japanese Nifty service reported growth.

Sprynet had 287,000 subscribers at the end of the first quarter, up 7,000 compared to the pervious quarter. Nifty's subscribers stood at 2,417,000 at the end of the quarter, up from 2,326,000 at the end of the fourth quarter.

CompuServe's first-quarter gross margin rose from 40% in the fourth quarter to 43% in the first quarter, while gross margin in the first quarter of the prior fiscal year stood at 33%.

Next month CompuServe expects to receive just over $70 million from majority owner H&R Block, Inc., reflecting the tax benefit to H&R Block resulting from CompuServe's loss in the 1996 calendar year.

CompuServe in Columbus Ohio can be reached at http://www.compuserve.com/ .

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