Internet service provider EarthLink Inc. on Tuesday said sales would not grow until next year, overshadowing a rise in quarterly earnings, which more than doubled.
Shares of the Atlanta-based company fell sharply.
Wall Street was disappointed over 2005 revenue projections, which is expected to fall from 2004 levels. The company has been squeezed between low-cost Internet service providers and telephone and cable companies offering more expensive high-speed access.
"The revenue was shy and usually they peak by a little more on the EPS line," said Oppenheimer & Co. analyst Peter Mirsky, who called the results a disappointment.
The third-largest U.S. Internet service provider said fourth-quarter profit rose to $35.6 million, or 23 cents a share, from $10.7 million, or 7 cents a share, a year earlier.
Revenue fell 3 percent, to $338.1 million, falling short of analysts' average estimate of $344.3 million.
The profit, which beat the average analyst forecast by a penny, was aided by significant cost savings from the closing of many of its call centers. That was offset somewhat by increased sales and marketing expenses as it increases high-speed Internet access, or "broadband," customers.
EarthLink faces low cost competitors United Online Inc and the much larger America Online, a unit of Time Warner Inc., which now plans to offer AOL for free to its cable high speed Internet subscribers.
The company, which plans to invest $180 million in cash into a joint venture with SK Telecom to launch a wireless service in the U.S., is banking on new product categories to help it ignite growth.
It also recently launched a free Internet calling service that EarthLink sees as an integral part of its consumer communications offerings, like e-mail.
Revenue growth is not expected to return until either the end of this year or next, Gary Betty, chief executive, told Reuters.
"It's not like we're falling off the edge of the Earth," Betty said. Growth in high speed Internet subscribers and its lower cost products are being offset by a steep decline in premium dial-up subscribers, he said.
The company also plans to shift over about 30,000 existing wireless subscribers to the new joint venture, which is expected to hurt EarthLink's full year revenue projections.
EarthLink ended the quarter with 5.4 million total subscribers, up 3.5 percent from a year ago. But it suffered a decline in its most profitable customers, including a drop of 211,000 in its net premium dial-up subscriber base, while Web hosting accounts declined by 5,000.
Looking ahead, the company said it sees first quarter revenues of $330 to $335 million, and net income of $28 million to $33 million. For 2005, its sees overall revenues of $1.3 billion to $1.34 billion and net profit of $106 million to $146 million.
Analysts were expecting full year revenue of $1.39 billion, according to Reuters Estimates.
EarthLink said it expects to increase the number of its paying subscribers by some 200,000 to 250,000 in 2005 through expected growth in its value narrowband and broadband services, including 20,000 to 50,000 subscribers in the first quarter.
