TECHNOLOGY Analysts say AOL has long way to recovery

AOL is losing advertising and subscribers.
WASHINGTON POST
Steve Case is set to hail Richard Parsons when he passes the gavel to AOL Time Warner Inc.'s popular new chairman at the company's annual meeting today. But major investors say the absence of conflict inside the world's biggest media company doesn't signal prosperity.
Instead, they say it will take years before a company stymied by debt, disgruntled employees and uncertainty over ongoing federal investigations has a shot at regaining the momentum and moxie it once had.
Case, co-founder of America Online, announced his resignation as chairman in January to quell investor unrest. Since then, Parsons has gotten high marks for bringing stability to the executive suite and managing expectations on Wall Street so far downward that the company, which repeatedly had overpromised and disappointed investors, can begin the lengthy process of restoring its reputation.
Upside, downside
"The new management team has been building credibility with investors, and they have been able to do that from a performance standpoint by meeting expectations in the first quarter," said Bill Driscoll, a principal with State Street Global Advisors. "The big thing that is still playing out" is the Securities and Exchange Commission investigation of the company, and "from my standpoint, the company has not done a good enough job staying ahead of the investigation as far as giving updates to investors."
Many large investors remain unconvinced that there's a solid plan to fix America Online. Advertising is dropping even as other online firms post gains. Meanwhile, competitors offering high-speed Internet access are stealing dial-up subscribers away from AOL so rapidly that the company is preparing for draconian cost cuts, sources familiar with the contingency plan said.
"We would like them to figure out a broadband product people would like to buy, but they haven't proven they can do that," said one major institutional shareholder, who asked to remain anonymous. "Wall Street puts a negative value on it."
Doug Kass of Seabreeze Partners -- whose "short" position in the stock means he's betting that the price will fall -- compares America Online to the long-distance telephone business, a once great franchise that eroded amid tough competition.