Earthlink beats consensus EPS as business shrinks (2Q05 ELNK earnings results)

Earthlink (ticker: ELNK) beat consensus EPS estimates, but revenue fell by 7%. Key stats from the quarter:

Q2 Subscribers

• Added 10,000 net subscribers for total of 5.4 million.
• Added 37,000 net broadband subscribers for total of 1.5 million.
• Narrowband subs decreased 5.6% y-o-y to 3.8 million.
• Premium narrowband subscribers decreased by 92,000.
• PeoplePC Online added 69,000 net subscribers for total of 1.1 million.

Q2 Results
(all comparisons are year over year unless stated otherwise)

• Total revenue fell 6.6% to $325.7 million, below consensus of $330 million.
• Narrowband access revenue fell 14.8% to $188.4 million.
• Broadband access revenue rose 5.9% to $112.1 million.
• Web hosting revenue fell 14.3% to $10.3 million.
• Advertising and other VAS revenue rose 54.1% to $14.9 million.
• Total costs of revenue fell 16.2% to $94.9 million.
• Sales and marketing expenses fell 4.7% to $93.6 million.
• G&A expenses rose 9.0% to $26.6 million.
• Operating income fell 1.5% $47.9 million.
• Operating margin of 14.7% vs 13.9% in Q2 2004.
• Net income fell 11.7% to $43.8 million.
• Diluted EPS of $0.31 vs $0.31, versus consensus of $0.25.

Q3 Guidance

• Net loss of 50,000 subscribers.
• Total revenue of $315 - $320 million.
• Declines in gross margins and increases in sales and marketing costs.
• Adjusted EBITDA of $50 - $55 million.
• Net income of $26 - $36 million (including an expected equity method loss of $5 - $10 million).

FY 2005 Guidance - UPDATED

• Net loss of 50,000 subscribers.
• Revenue of approximately $1.3 billion.
• Adjusted EBITDA of $205 - $215 million.
• Net income of $125 - $145 million.

ELNK chart.

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