Revenues Soar for Westlake Village, Calif.-Based Discount Internet Provider.

By Gregory J. Wilcox, Daily News, Los Angeles Knight Ridder/Tribune Business News

Oct. 31--WESTLAKE VILLAGE, Calif.--Discount Internet provider United Online Inc. on Thursday reported a nearly six-fold jump in first quarter profits as revenues soared 53 percent on strong subscriber gains.

Westlake Village-based United Online, know for its NetZero, Juno and BlueLight brands, said it earned $8.9 million, equal to 19 cents a share, for the fiscal quarter ended Sept. 30, up sharply from a profit of $1.5 million, 3 cents a share, in the like period a year ago.

Revenues increased to a $88.8 million, a record for any quarter, from $58.1 million in the year-ago first quarter.

Despite the upbeat report, the company's stock closed Thursday at $28.06, down $3.03, or 9.75 percent.

Mark R. Goldston, the company's chairman, chief executive officer and president, said in a conference call that the results reinforce the company's belief in strong growth prospects for the value segment of the Web market.

United Online offers a free 10-hour monthly service, dial-up service for $9.95 a month and a faster setup for $14.95 a month. Dial-up service from providers like MSN and America Online and broadband connections from telecommunications companies are generally more than twice as expensive as United Online products.

"Our profitability was outstanding during the September quarter, further evidencing the strength of our business model and our capacity for efficient and profitable growth," Goldston said.

The company is efficient. It has 487 employees worldwide, far less than MSN or AOL.

During the quarter, United Online's paid subscriber base increased by 173,000 customers to a record of 2.7 million. That's up an annual 47 percent. It boosted the company's total subscriber base to 5.2 million users.

About 15 percent of the paid subscribers use the company's faster service.

"I've stated many times over the past nine months that this technology could elongate the life cycle of dial-up and I believe that these results enforce that view," Goldston said.

The company is also making inroads into the broadband market, he said.

As proof, Goldston cited a CyberTarget Research Unit study that found 12.3 percent of the customers opting for the accelerated dial-up service were former broadband customers.

"That is an enlightening statistic because it says that we've expanded our opportunity to attract new subscribers beyond our free base, beyond switchers from premium dial-up and beyond just new Internet households. We've now included broadband in that."

The company also said that operating income for the quarter was $13.8 million, or 15.5 percent of revenues, versus operating income of $700,00 in the year-ago quarter.

United Online has also been investing in television advertising and marketing via a NetZero car on the popular NASCAR circuit.

"Sales and marketing costs are going up. But so is subscriber growth. Management has done a good job in translating those costs into growth," Kaufman Brothers analyst Mark May told Reuters.

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