Expansion plans hurt EarthLink’s earnings

EarthLink’s sky-high ambitions have brought the company’s earnings crashing down to earth, as its Helio wireless investment was largely responsible for a third-quarter loss of $3.2 million, or two cents per share.

That compares with $36.4 million in earnings for the third quarter of 2005, or about 27 cents per share. The loss was slightly higher than analysts had projected.

EarthLink executives said the company lost $26.2 million on Helio, a joint venture with SK Telecom of South Korea, and also faced increased marketing expenses for its new broadband, VoIP and municipal Wi-Fi ventures. As a result of those increased expenses, the company said, its adjusted EBITDA was $31.6 million, down 43% from the third quarter of 2005.

“EarthLink continues to deploy, expand and execute on its strategic initiatives to become a total communications provider,” said Garry Betty, EarthLink president and CEO, in a prepared statement. “During the quarter, our core access once again funded our voice, data and wireless investments. We are also seeing a steady improvement in our non-access services as we reported our 13th consecutive quarter of record revenue from advertising and other value-added features.”

The company’s revenues were up 4.5% over the previous year but fell slightly short of analyst projections at $331.3 million. Revenue from EarthLink’s traditional services showed expected declines – dial-up service revenue was down 17% to $150.8 million, and Web hosting revenue fell 13% to $8.7 million.

EarthLink saw significant growth in its new broadband and voice initiatives. Broadband revenues increased to $149.4 million, up almost 37%, over the previous year’s quarter, and that growth was attributed primarily to business and voice services. The company said it added 47,000 net broadband customers, which include 10,000 net voice subscribers, in the quarter, and ended the quarter with 1.9 million broadband subscribers, an increase of 20% over the third quarter of 2005.

Advertising revenue grew 36% to $22.4 million.

The losses related to Helio reflect an increase in operating activities for the wireless joint venture, which targets a younger audience with specific wireless features. EarthLink said Helio increased its distribution to more than 2500 retail doors and launched a national television and print marketing campaign.