Analysts downgrade AOL Time Warner stock after SEC probe of accounting disclosed
Friday, July 26th 2002, 12:00 am
By: News On 6
NEW YORK (AP) _ AOL Time Warner Inc., a punching bag on Wall Street in recent months, took another beating as analysts downgraded its stock after the company disclosed it was being investigated by the Securities and Exchange Commission.
At least a half-dozen investment banks issued reports Thursday with lower ratings on the stock, and most cited uncertainties surrounding the probe into the company's accounting.
Chief executive Richard Parsons disclosed the probe Wednesday, saying the SEC was conducting a preliminary inquiry into the accounting of several transactions that boosted revenues at the AOL division.
The transactions were reported last week in a series of articles in The Washington Post, which described them as ``unconventional'' ways of accounting for revenues. They included selling ads to a British entertainment company in lieu of taking a cash settlement in a legal dispute, and booking sales from ads that were sold on behalf of eBay.
Parsons said the company stood by its accounting and that its auditors, Ernst & Young, had signed off on the transactions.
While analysts didn't accuse the company of cooking its books, they said concerns about the inquiry would cloud the outlook for the stock.
Salomon Smith Barney analyst Jill Krutick told investors said the probe added a new level of uncertainty about the stock, especially given ``the current environment where rules can shift and political pressures run high.''
AOL Time Warner stock tumbled $1.76, or 15 percent, to $9.64 at the close of trading Thursday on very heavy trading of 149 million shares on the New York Stock Exchange, six times the average daily volume. The stock is down about 70 percent since the beginning of the year.
Questionable accounting practices have caused the AOL side of the company to run afoul of regulatory authorities in the past. In May 2000 the company agreed to pay a $3.5 million fine to settle SEC charges that it improperly accounted for costs to mail computer discs to potential customers.
Making matters worse at the troubled company, the flailing AOL division still has no leader. Chief operating officer Robert Pittman, a former AOL chief dispatched in April to repair America Online, announced his resignation last week as part of a management shake-up.
One of the most serious issues confronting AOL is the maturing of its dial-up Internet service business and the slow conversion of its users to more profitable high-speed connections. AOL has yet to sign deals with major cable companies to carry its service, and other companies offering high-speed services are growing rapidly.