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International Market Opportunity by AOL

1 percent in 1999 and 17.9 percent in 2000 (Hoover's, Inc., 2005b).

In 2004, AOL's operating income before depreciation and amortization was $1.772 billion, or 20.3 percent of revenues. After depreciation and amortization, operating revenues were $934 million, or 10.7 percent of revenues (Time Warner, Inc., 2005b). The effective income tax rate for Time Warner in 2004 was 34.6 percent. If this rate were applied to AOL operations, net income in 2004 would have been $610, or seven-percent of revenues.

Table 1 - AOL Revenues by Source (full-year 2004)

The Company's revenues rebounded in 2002 from the collapse of the Internet bubble in 2000. Since 2002, however, revenues have declined. In 2004, AOL accounted for 20 percent of Time Warner revenues (Time Warner, 2005b). The Company's net revenue trend for 2000-2004 is presented in Chart 1.

Among the most important strengths of AOL is the Company's massive subscriber base. Unfortunately, the Company's subscriber base also is one of the AOL's weaknesses in late-2005. The weakness stems in part from the declining numbers of subscribers. Another weakness associated with the Company's subscriber base, however, is the heavy contribution of subscription income to total AOL revenue.

Subscription income accounted for 86 percent of revenues in 2004, compared to a contribution of 11.6 percent by advertising. If AOL opens the Company's proprietary Internet content to all Internet users at no subscription cost, advertising-generated revenues must increase 8.4 times 2004 levels to offset the loss of subscription-generated revenue.

Reasons for AOL to Pursue International Expansion

There are sound reasons for AOL to pursue international expansion. Most of the Company's current problems are associated with its operations in the United States. Growth in the use of Internet services remains possible in the United States; however, growth potential is greater in many international market...

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International Market Opportunity by AOL. (1969, December 31). In LotsofEssays.com. Retrieved 16:20, December 22, 2014, from http://www.collegetermpapers.com/viewpaper/1303341838.html
 
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