America Online Reports FY97 First Quarter Results, Takes Previously Announced Charge for Deferred Marketing Costs.

DULLES, Va.--(BUSINESS WIRE)--Nov. 7, 1996--America Online, Inc. (NYSE: AOL) today reported that its revenues increased 77 percent to $349.9 million for the three months ended September 30, 1996, from $197.9 million for the first quarter of fiscal 1996, driven principally by growth in its subscriber base as well as significantly higher revenues from advertising and electronic commerce.

As announced on October 29, the Company wrote off $385.2 million in deferred subscriber acquisition costs at September 30, resulting in the latest quarter's earnings of $19.0 million, or $0.17 per share, becoming a reported net loss of $353.7 million, or $3.80 per share. In fiscal 1996's first quarter, net income, excluding a charge for acquired research and development, was $6.1 million, or $0.06 per share.

With Other Revenues rising to a record $38.8 million, roughly 24 percent above June quarter levels, the Company said it was now providing access to its highly desirable demographic audience to more than 50 advertisers, up from six a year ago. Eight advertisers have already committed to spending levels of $1 million or more this fiscal year, with AOL currently delivering over 14 billion page views per quarter.

Reflecting its resumption of major marketing programs in support of AOL version 3.0, and in preparation for its seasonally strong December and March quarters, the Company accelerated marketing spending in the period, though total subscriber acquisition spending remained consistent with targets set in early August, at roughly $130 million.

Retention Rates Improve Over Quarter

With new programs focused not only on customer acquisition but subscriber retention marketing, the Company said its retention rate improved as the quarter progressed, reaching its best levels in September since mid-1995. Not only have customer retention rates continued the consistent improvement that started nearly six months ago, AOL said it has also seen strong subscriber growth following the September launch of its new marketing campaigns. Having added approximately 400,000 net new subscribers in the first quarter, the Company said it gained nearly 275,000 in October alone, for a current total of about 6.9 million members worldwide. At the same time, average hourly usage improved to 6.95 hours per member in the recent period and, in October, hit its highest level in the Company's history.

New Product and Marketing Signal Renewed Momentum

Said Steve Case, Chairman and Chief Executive of America Online, "As the top brand with the broadest membership base, pricing leadership and a superior product, we're now building on the strengths of our flagship AOL service to generate greater customer usage and higher retention, develop new revenue streams, create exciting original content and exploit the market potential of three global businesses -- consumer networks, content development and network communications."

Case continued, "In the spring, we indicated that member growth would be slow in the summer, but would likely pick back up in the fall as we rolled out our 3.0 software and increased our marketing expenditures. We're pleased to report that growth has indeed accelerated, and, now, with new unlimited pricing and 3.0 software also available for Macintosh and Windows95, we believe we are poised for continued strong growth in the months ahead. Indeed, our primary concern right now is meeting the demand we are anticipating for the new, improved AOL."

After launching version 3.0 for Windows in the most recent quarter, AOL last week made available 3.0 for Windows95 and Apple's PowerMac users while also introducing the industry's most competitive prices for online and Internet access. Together with a new standard monthly rate of $19.95 for unlimited use of AOL and the Internet, the Company now offers monthly rates as low as $14.95 unlimited for customers who join the service for two years, or $9.95 a month when accessing AOL from another Internet provider, or $4.95 a month for light users. The new pricing takes effect in December.

Currently, the Company said version 3.0 is in use by approximately 50 percent of subscribers and represents more than 60 percent of hourly use, while about 40 percent of eligible Mac users have downloaded the new PowerMac client in its first week of availability.

Charge for Deferred Marketing Costs

Resulting from a change in accounting estimate, the previously announced charge of $385.2 million represents the balance of AOL's deferred subscriber acquisition costs as of September 30, 1996. In compliance with SOP 93-7, "Reporting on Advertising Costs," the Company had previously deferred the cost of certain marketing activities and then amortized those costs over a period of up to 24 months. While the Company expects its recently announced flat-rate pricing option to result in lower margins related to online service revenues, it lacks historical experience with this pricing.

At the same time, the Company's changing business model is also expected to increasingly reduce its reliance on online service subscriber fees for the generation of revenues and profits, by growing new high-margin revenue streams. These changing market dynamics, coupled with a lack of historical experience with flat-rate pricing, create uncertainties regarding the level of expected future economic benefits from online service subscription revenues. As a result, the Company believes it no longer has an adequate accounting basis to support recognizing deferred subscriber acquisition costs as an asset.

Commitment to Leadership

"The initiatives we announced last week -- including the creation of three new operating divisions, the rollout of new pricing and features, and this shift toward a simpler approach to financial reporting -- signals AOL's commitment to position itself as the global leader in interactive services," Case noted.

America Online, Inc. (NYSE: AOL), based in Dulles, Virginia, is the world's most popular Internet online service, with nearly 7 million members worldwide. AOL offers its subscribers a wide variety of services including electronic mail, conferencing, software, computing support, interactive magazines and newspapers, and online classes, as well as easy and affordable access to services of the Internet. Founded in 1985, AOL today has a global workforce of more than 5,000 people. Personal computer owners can obtain America Online software at major retailers and bookstores or by calling 800/827-6364.

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to statements regarding anticipated subscriber growth. Such statements are based on management's current expectations or beliefs and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. In particular, careful consideration should be given to cautionary statements made in the Company's reports filed with the Securities and Exchange Commission. -0-

                        AMERICA ONLINE INC.

                  Consolidated Summary of Results
                           (Unaudited)

                                     Three months ended
                                         Sept. 30,
                                      --------------
                                      1996       1995
                                      ----       ----
                        (amount in thousands, except per share data)

Revenues:

  Online service revenues          $311,132     $178,479
  Other revenues                     38,850       19,423
                                   --------    ---------
    Total revenues                  349,982      197,902

Costs and expenses:

  Cost of revenues                  188,223      119,077

  Marketing                          75,872       36,924

  Product development                19,326        9,580

  General and administrative         35,564       20,480

  Writeoff of deferred subscriber
    acquisition costs               385,221         --

  Acquired research and
    development                        --         16,981
  Amortization of goodwill            1,920        1,663
                                   --------    ---------
    Total costs and expense         706,126      204,705
Loss from operations               (356,144)      (6,803)
Other income, net                     2,455          832
                                   --------    ---------
Loss before provision
 for income taxes                  (353,689)      (5,971)
Provision for income
 taxes                                 --         (4,936)
                                  ---------    ---------
Net loss                          $(353,689)   $ (10,907)
                                  ---------    ---------
                                  ---------    ---------


Loss per share                    $   (3.80)   $   (0.14)

Weighted average shares
 outstanding                         93,169       77,147



                   Consolidated Condensed Balance Sheets
                         (Amounts in thousands)

                                            Sept. 30,      June 30,
                                              1996           1996
                                             --------      --------
ASSETS                                      (Unaudited)

Current assets:
 Cash, cash equivalents and short-term
  investments                                $102,235     $129,133
 Accounts receivable                           82,380       72,613
 Prepaid expenses and other current assets     70,100       68,832
                                              -------      -------
     Total current assets                     254,715      270,578

Property and equipment at cost, net           109,343      101,277

Other assets:
 Deferred subscriber acquisition
   costs, net                                    --        314,181
 Product development costs, net                55,218       44,330
 Deferred income taxes                         18,662      135,872
 Goodwill, net                                 51,925       51,691
 Other                                         49,050       40,825
                                              -------      -------
                                             $538,913     $958,754
                                              -------      -------
                                              -------      -------


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Trade accounts payable                      $115,317     $105,904
 Other accrued expenses and liabilities       144,386      143,617
 Deferred revenue                              45,593       37,950
 Current portion of debt and
   capital lease obligations                    2,098        2,435
                                              -------      -------
Total current liabilities                     307,394      289,906

Long-term liabilities:
 Debt and capital lease obligations            19,051       19,306
 Deferred income taxes                         18,662      135,872
 Minority interest                             12,908         --
 Other                                          1,981        1,168
                                              -------      -------
Total liabilities                             359,996      446,252

Total stockholders' equity                    178,917      512,502
                                              -------      -------
                                             $538,913     $958,754
                                              -------      -------
                                              -------      -------


                       Supplemental Information
             (amounts in thousands, except per share data)


                                           Three Months
                                           Ended 9/30/96
                                           -------------

Net loss as reported                        ($353,689)


Add:

    Charge for writeoff of deferred subscriber
     acquisition costs of $385,221, net of
     related tax impact of $12,496           $372,725

Net income before writeoff of deferred        -------
 subscriber acquisition costs                $ 19,036
                                              -------
                                              -------

Earnings (loss) per share:
------------------

As reported                                    ($3.80) (1)
                                              -------
                                              -------

Before writeoff of deferred subscriber
 acquisition costs                              $0.17  (2)
                                              -------
                                              -------


(1) Based on weighted average common shares
     outstanding, excluding common stock
     equivalents (due to loss)                 93,169

(2) Based on fully diluted shares             110,819

CONTACT: America Online

Financial Community - Richard Hanlon, 703/265-1271

Media - Pam McGraw, 703/265-1746