Google's AOL stake walks the plank
A $726m loss? We'll take it
Google recently stomached a $726m write-down thanks to its stake in the increasingly-irrelevant America Online. And now it looks like the search giant wants out of its AOL investment entirely.
Today, during his quarterly earnings call with reporters and analysts, Time Warner CEO John Martin said that Google recently asked if it could exercise the so-called "demand registration rights" for its 5 per cent stake in AOL.
In other words, Google has asked Time Warner to either buy back its three-year-old AOL stake or spin AOL off as a public company. "We are reviewing the request. But we have several options, including proceeding with the request, delaying a decision for some time or buying back Google’s stake at an appraised value, which would obviously be well below the original amount," Martin said, according to All Things Digital.
Considering the state of the economy - not to mention AOL's gradual descent into complete irrelevance - it's unlikely Time Warner would take the company public. We can only assume the media giant will buy back Google's share - if that's what Google wants. Google paid $1bn for the five per cent stake back in 2003, and now the market value is down to about $274m.
As others have speculated, Google's Time Warner request may be its way of encouraging Time Warner to extend its search deal with AOL. Google currently provides both paid and un-paid search results on AOL.
But voices are also wondering whether Google is angling to update the deal so it can continue serving AOL search results even if the company is sold to a third party. There's been some talk, you may have noticed, about Yahoo! nabbing AOL.
Google did not immediately respond to a request for comment.
During Google's latest earnings call, CEO Eric Schmidt said that the company's AOL deal and its investment in WiMAX struggler Clearwire "made sense to us then and make sense to us now and continue to be a strategic part of our overall business philosophy."
But Schmidt likes to spin. Google may be happy with the $274m its AOL stake would bring today. It'll bring even less tomorrow.
In Q4, Time Warner says, AOL revenues dipped to $968m, a 23 per cent fall from the year before. Ad revenue fell 18 per cent, and subscription revenue fell 27 per cent. ®
AOL gone? Not likely
AOL is about as entrenched as IE5. Its going to die slowly, taking as many of the ignorant masses as it can with it.
Irrelevance can still equal 5bill market worth.
the thing you're looking for is right there in the Q4 annoucement. subscription revenues dropped 25%. whilst AOL can certainly coast along on unwilling and ignorant customers for a good long time (like the last 5 years)people are jumping ship. the original crop of cutomers are being forced to leave, mostly by their kids who cant understand why mom and pop are paying $25 a month for a sometimes-on DUN and the rent of an email address.
Google might have wads of cash, but long term, they dont have enough cash to act stupidly; cashing in their AOL chips now to claw back 250mill is better than waiting a year and losing another hundred mill. Frankly Im wondering when the AOL truck is finally gonna run out of power, and if its going to sink Time warner along with it.
The reason why AOL is making so much money
Most people in America used AOL at one time back before broadband. Now that they have canceled their AOL account, AOL continues to charge them $5 a month for their email address. and then about a year ago they started charging all those millions of people $20-25 a month without their knowledge or permission with the excuse that "The $20 dollar monthly charge is for a dial-up account in case your broadband connection goes down." Millions of people in America have been paying AOL monthly charges for nothing for years because they don't know a lot about computers and they think that AOL is charging them for something legitimate.