AOL Time Warner yesterday warned that America Online is continuing to disappoint expectations and would deliver far lower earnings this year than previous forecasts.
The world's largest media group blamed weakness in the internet service provider's advertising sales. The division's full-year advertising revenue is likely to be $1.7bn (£1.1bn), with an additional "5% downside risk", the company said.
Core earnings will be in a range of $1.7bn-$1.8bn, pared back from earlier guidance of between $1.8bn and $2.2bn.
America Online, which had been cast as the engine that would supercharge the old media businesses during the merger with Time Warner, has instead become a drag on both earnings and the company's share price.
As well as faltering advertising sales, America Online has suffered a sharp slowdown in subscriber growth. Many of its advertisers were other dotcom companies that have since either gone out of business or are conserving cash.
The company reaffirmed its earlier forecasts for the wider group, but the bleak outlook at America Online weighed on AOL shares. They fell 3.5% in early trade to $12.67.
AOL last month named Jonathan Miller as chief executive of America Online, replacing Bob Pittman, who quit under increasing pressure.
Mr Miller, a former USA In teractive executive, is one of the first outsiders to hold a top position at America Online. He reports to Don Logan, a veteran Time executive recently installed to oversee the subscription parts of the empire which also includes magazines and cable television.
The US justice department and financial regulator the securities and exchange commission are conducting continuing investigations into the accounting methods used by America Online.
They are investigating allegations that the business inflated its advertising revenues with a series of dubious deals in the run-up to the merger with Time Warner.
The executive who brokered many of those deals, David Colburn, was asked to leave the company last month.
America Online has struggled to replicate its narrowband success in the more lucrative broadband sector, but has agreed a breakthrough deal that will give it access to 19m Comcast cable homes in the US.
In the most recent quarter, America Online reported core earnings of $473m, down from $652m a year earlier.
The company added just 492,000 subscribers, falling short of analysts' expectations of 1m.
For the wider group, AOL is sticking to forecasts of full-year revenue growth of between 5% and 8% and earnings growth at the low end of a 5%-9% range.
