America Online, Inc. Reports FY98 Third Quarter Net Income, Before Special Charges, of $39.0 Million or $0.16 Per Share

May 6, 1998

Advertising, Commerce and Other Revenues Up 72% to a Record $117.9 Million DULLES, VA, May 6, 1998 - America Online, Inc. (NYSE: AOL) today reported net income, before special charges and on a fully taxed basis, of $39.0 million, or $0.16 per share on a diluted basis, for its fiscal third quarter ended March 31, 1998. These results compare to a net loss of $4.7 million, or $0.02 loss per share, in fiscal 1997's corresponding quarter. Revenues for the latest quarter increased 54% over the same quarter last year to a record $693.6 million. The quarter's pre-tax income, before special charges, rose to $63.4 million, or 9.1% of revenues, as compared with a loss of $4.7 million in the third quarter of fiscal 1997. Reported net income for the quarter - including the special charges and with no tax provision - totaled $18.6 million, or $0.08 per diluted share. The Company's tax provision was offset by the utilization of its net operating loss carryforwards. As of March 31, 1998, the Company's net operating loss carryforwards and other deferred tax benefits totaled $827 million. During this quarter, the Company had two special charges which had been previously announced. In connection with the restructuring of AOL Studios, the Company recorded a charge of $35.1 million. In addition, the Company took a $9.7 million charge for acquired research and development related to the January acquisition of Personal Library Software (PLS), a leading developer of information indexing and search technologies. The Company's cash position improved by $405.9 million during the quarter, increasing to $924.1 million at March 31, 1998 from $518.2 million at December 31, 1997. This improvement was principally due to the generation of $214.3 million in cash from operations and $207.4 million in cash received pursuant to the January CompuServe/ANS Communications, Inc. transaction. "We are extremely pleased with AOL's operating results, which show strong continuing momentum across the board," said Steve Case, Chairman and Chief Executive Officer of America Online. "We built membership steadily and efficiently throughout the quarter, both in the U.S. and internationally, and made significant gains in advertising and electronic commerce. We substantially improved our cash position. And we continued to tightly manage costs. "During the quarter, we moved quickly to integrate CompuServe and put in place a new organization to support our AOL, CompuServe and AOL Studios product groups," Mr. Case added. "To enhance our members' online experience, we are continuing to build and upgrade our network infrastructure, expand customer service, and roll out new products like our next-generation AOL 4.0 software. And AOL continues to take an active role in the development of emerging technologies and markets, as well as in public policy issues affecting the interactive medium." AOL's flagship service experienced a strong quarterly increase of 1,148,000 new members for a total of 11,870,000 worldwide as of March 31, 1998. On April 16, the Company announced that its membership had topped 12 million worldwide. In addition, CompuServe had a worldwide total of 2,175,000 members in good standing as of March 31, 1998, excluding members of its SpryNet Internet service. The Company's marketing expenses during the fiscal 1998 March quarter were reduced to $84.2 million, or 12.1% of revenues, from the prior year period's $92.8 million or 20.6% of revenues. Advertising & Commerce Momentum Continues This quarter's advertising, commerce and other revenues amounted to $117.9 million, compared to $68.6 million in last year's corresponding quarter. AOL's backlog of advertising and commerce contract revenues increased by $107 million from the December quarter to reach $427 million. Bob Pittman, President and Chief Operating Officer of America Online, said: "The AOL experience increasingly is becoming integral to our member's everyday lives. For advertisers, marketers and content providers, that means the AOL brand is their best choice for online partnerships. And we are increasingly leveraging our growing subscriber base to deliver special benefits for our members." Mr. Pittman added: "Our new commerce and content partnerships with Bloomberg, Sage, Intuit,, and Standard & Poor's Personal Wealth have made AOL's Personal Finance Channel - already cyberspace's #1 financial site - even more valuable to our members." Over the past several months, a series of new or expanded content and commerce agreements have helped AOL enrich its members' online experience. For example, AOL's financial offerings have benefited from: A relationship with Standard & Poor's Personal Wealth, the newly launched premium Web investment management service, to be featured in the AOL Personal Finance Channel; A multi-year agreement with Bloomberg L.P., the global news, information and media company, including an anchor tenancy in AOL's Business News Center; An expanded multi-year partnership with Sage, the world's largest online mutual fund forum, to be the premier provider of information and analysis on the mutual fund industry; A relationship with, a leading investment news site, including an anchor tenancy in AOL's Personal Finance Channel; and, A multi-year partnership with Intuit, Inc., the world leader in financial software and Web-based services, to provide content for a variety of AOL financial areas and the primary source of original programming for the Personal Finance Web Channel on AOL.COM. Also during this past quarter, AOL announced long-term, multi-million dollar commerce agreements with Cyberian Outpost Inc.,, and Provident American Corporation. Last month, the Company reached a $14 million, multi-year agreement with REALTOR.COM, which is the exclusive provider of existing home listings to AOL's newly launched Online Real Estate Center. Additionally, AOL has entered into content partnerships with E! Online, Infonautics' Electric Library service, and the magazine Teen People in AOL's new AOL Teen Channel. AOL also extended its relationship with Hachette Filipacchi to continue to provide such popular magazines as George, Mirabella, Woman's Day, and Popular Photography to our members. Using its infrastructure to provide services to corporate customers, the Company announced that AOL Enterprise has reached agreements with Lotus Development Corporation to provide Internet access in its Lotus Notes collaboration software, and with Oracle Corporation to provide Oracle's mobile workforce with Internet access and services. Members Continue to Make AOL Integral to Everyday Lives AOL member usage grew during the last quarter, with daily usage averaging 46 minutes per member, up from fiscal 1998 second quarter's 41 minutes. Simultaneous usage of the service during peak periods grew to more than 675,000 during the quarter. AOL's increased audience reach is reflected in the fact that at the end of the quarter, the service was handling daily: 28 million e-mails to 90 million recipients; 200 million instant messages; 75 million stock quotes; More than 800 million Web hits; and More than 8.3 million hours in member usage. As part of its continuing efforts to progressively improve the member experience, AOL continued to roll out its next-generation 4.0 software - now being used by 1.2 million members in preview. AOL also continued to expand its network to meet demand, making available over 25,000 more modems in each month during the quarter. At the end of the quarter, the Company had approximately 775,000 modems available to members. In addition, AOL announced in April an agreement to license Inktomi's Traffic Server(tm) network cache software. AOL plans to use this software as part of its Web service. Last month, AOL announced that it will become the first national Internet online service provider to begin conducting field trials for high-speed access to its service using Digital Subscriber Line (xDSL) broadband services. Finally, the AOL Buddy List service will become part of the Smithsonian Institution's Permanent Research Collection on Information Technology Innovation at the National Museum of American History. With approximately 25 million accounts among both AOL members and Web users, the AOL Buddy List enables users worldwide to see when friends, family and colleagues are online and communicate with them in real time using the Instant Message(tm) feature. Progress in Integrating CompuServe During the quarter, America Online moved quickly to integrate CompuServe's U.S. service, stabilize its membership base, and improve profitability. The plan for the service includes fast-track development of CompuServe 4.0, an HTML-based client to be launched this summer, which will make it easier for the service's busy members to quickly find what they are looking for. CompuServe also announced that it has reached a multi-million-dollar agreement with Tel-Save to offer its competitively priced long-distance telephone service to CompuServe members. In addition, CompuServe announced this week that it was expanding its relationship with Florists' Transworld Delivery (FTD). In early April, U.S. CompuServe launched a new marketing and advertising campaign and unveiled its new logo. This new, nationwide print and broadcast advertising campaign - the first campaign that the U.S. service has initiated in almost two years - is designed to position CompuServe as the choice for sophisticated, time-constrained consumers who are "serious about Internet Online." Its goal is to re-introduce the public to one of the most respected and best recognized brands in cyberspace, raise general consumer awareness of the brand and build on CompuServe's strong brand equity. AOL International Capitalizing on Reaching Critical Mass During this past quarter, AOL International continued to build the Company's worldwide position. In Europe, the America Online-Bertelsmann AG joint ventures operate both AOL and CompuServe - making it the leading pan-European Internet online service provider with more than 2 million combined members. Last month, the AOL-Bertelsmann joint venture reached an agreement with N2K Inc., the leading online music entertainment company, to make N2K's Music Boulevard the exclusive music retailer for the AOL Europe Internet online service as well as Web-based services. AOL and the Hong Kong-based China Internet Corporation Limited (CIC), announced plans to launch an AOL-branded service for Hong Kong consumers within the next year. The AOL Hong Kong service will be built on the AOL U.S. service and will provide original local content in both Chinese and English, with most local content being developed or provided by CIC. AOL Studios Launches Digital City New York and 2.0 Upgrade During the quarter, AOL Studios launched Digital City New York, marking the first time that Digital City introduced an interactive online city on both AOL and the World Wide Web. The newest of 38 Digital City sites nationwide, Digital City NY sets the stage for the national roll-out of Digital City 2.0 - the next generation of cross-platform Digital City sites - over the coming year and expands AOL Studios' position as the leader in interactive content both nationally and locally. With its advertising and commerce revenues doubling from the December quarter, AOL's Digital City also is ranked as the Internet online's #1 local city resource, according to Media Metrix's March research report. In addition, the network increased its reach in March by 500,000 (15%) to a total of 2.9 million people monthly, or more users than the next three local content networks combined.

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