Juno Announces Q3 Results

National ISP takes cost-cutting initiatives to fend off rising costs of providing free access. What's in the numbers for Juno?

by Jim Wagner of internetnews.com [October 24, 2000]

Juno Online Services, Inc., announced a 130 percent increase in revenues from last year in its third quarter report released Tuesday.

The free-to-pay Internet service provider shaved nearly one-third, or $13.6 million, of its net loss in the third quarter, an immediate dividend, officials said, of the recent shift in customer acquisition strategies.

Its shifting emphasis on advertising methods and bringing heavy Internet users over to paying services is a trend the ISP wants to see more of, and will focus much energy to in the fourth quarter.

Jumpin' jive
Juno saw a jump in its active subscriber base, from 3.38 million in June to 3.7 million, ensuring its status as the third-largest ISP in the nation, behind America Online, Inc., and Earthlink, Inc. The 3.7 million active subscribers make up the 12.77 million total registered users of Juno. Active users are those that use the Juno service as their primary access to the Internet.

More important, to Juno accountants, was the 20,000 paying customers who signed on to its premium service in the third quarter, bringing the tally to 750,000.

The company is setting its cost-cutting sights on the free subscribers who surf on the Internet often, officials said. Operational costs for its free subscribers jumped to $11.8 million in the third quarter, a $2.3 million increase over the second. That, coupled with the drop in advertising revenues, has officials looking to get those heavy users on its billable service.

Making free access pay
Charles Ardai, Juno president and chief executive officer, said it's those heavy users who make up about 50 percent of the costs incurred to the incumbent local exchange carriers.

"We want to get them to start paying for our service, since they make up a large part of the costs," said Ardai. "The majority of people, who only use Juno once or twice week, aren't costing us anything, but its the five percent that connect to the Internet we want to encourage to either cut back on their Internet use or switch to our paying services."

While he realizes that might lose him some customers, Ardai believes it is necessary to increase Juno's profitability, "particularly in light of recent changes in the Internet market environment."

Smart pill
The third quarter results, announced Tuesday, found that 85 percent of its 75 cents per share net loss is attributable to subscriber acquisition expenses. Determined to work smarter, not harder, Juno officials announced several campaigns designed to relieve pressure on its outflow costs and still bring new subscribers to their service.

Late in the second quarter, Juno shifted its attention from the conventional advertising, which includes television and CD mailing campaigns, that was contributing to the increased expenses the ISP was incurring.

In late June, Juno announced it was acquiring the customer base of soon-to-be-defunct free ISPs Freewwweb and WorldSpy. Juno would pay the companies a certain value in stock or cash for every customer that switched service to its service. In the third quarter Juno launched co-branding campaigns with IBM and Babbages, Inc., along the same lines as the previous deals, with a payoff for every referred customer.

"Paying on the back end was the great part of these deals," Ardai said. "There was no real significant upfront cost, and we were able to pay them off with stock, which also saved us some money.

"While I can't say that we're going to be announcing more of these deals in the future," Ardai continued, "I can tell you that we are considering all the possible options, and that is one of them."

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