United Online Profit Up 77%; Forecast Is Raised

United Online Inc., the discount Internet service provider, said Monday that its first-quarter profit rose 77% and raised projections for the year as it continued to win dial-up subscribers despite an industrywide move to faster broadband connections.

Best known for its NetZero and Juno offerings, United Online earned $12.4 million, or 18 cents a share, in the first three months of the year, a sharp rise from $7 million, or 10 cents a share, in the same period last year. Revenue jumped 46% to $107.7 million.

The results were driven in large part by a 29% increase in paying subscribers over the last year, to 3.1 million as of March 31. The Westlake Village company said it expected to have as many as 3.55 million subscribers by the end of 2004, 50,000 more than it previously forecasted.

The growth in United Online subscribers highlights how traditional dial-up services like those offered by Time Warner Inc.’s America Online unit and EarthLink Inc. are being squeezed from above and below.

AOL and EarthLink have seen subscribers to their so-called premium services -- which charge $23.90 and $21.95 a month respectively -- plummet as customers leave for high-speed broadband services or discount dial-up options like NetZero, which costs $9.95 a month. AOL alone lost 840,000 dial-up subscribers in the first three months of the year.

United Online is betting that broadband will remain expensive enough that millions of customers who go online just to surf the Web and check e-mail will stick with cheaper dial-up services.

“We do not see that everyone is going to go out and buy Ferraris to drive back and forth from Ralphs,” Chief Executive Mark Goldston said in an interview.

United Online also benefited during the quarter from the boom in online advertisements targeted to search results. The ISP said $3.5 million of its $10 million in advertising and commerce sales came from targeted ads delivered through a partnership with Yahoo Inc.’s Overture Services unit, a 24% rise from the fourth quarter. The company did not disclose such revenue in the first quarter last year.

The company raised its annual operating income forecast, minus certain one-time charges and stock-based charges, to as much as $111 million, from $108 million.

The results boosted shares of United Online nearly 6% in Monday trading. The stock rose 96 cents to $17.49 on Nasdaq.