Google’s investment in AOL heading down

August 8, 2008

toilet.jpgFive percent of AOL may not be what it used to be.

Many thought that was the case, but now even Google says so, conceding in a filing that its stake in Time Warner Inc’s AOL unit may be worth less than the $1 billion the Web company paid for it in 2006. “We believe our investment in AOL may be impaired,” Google said in its quarterly financial filing.

Here’s what people are saying about it.

Silicon Alley Insider:

Of course, we knew that already. The highest estimates of AOL’s value these days usually top out at around $10 billion ($15 billion if Microsoft goes into a testosterone-fueled bidding-war rage). This would put the value of Google’s 5% stake at, say, $500 million to $750 million.

What’s most interesting about Google’s AOL note, however, is that the company believes the impairment may be temporary (expressed below as not believing the impairment is other than temporary). This is a polite way of saying that Google is dreaming that AOL might actually recoup some of its vaporized value someday.


Translated, it means it Google is does not believe the current value of AOL is near $20 billion. Back in December 2005, Google paid about $1 billion for a 5 percent stake in AOL-though it’s debatable whether Google ever believed AOL was worth that much. It was a defensive move-preventing Microsoft (NSDQ: MSFT) from powering AOL search-so it paid a premium. There’s obviously some legalese here: the asset is still being booked “at cost” on the balance sheet (so no writedown just yet), but this is a new note not present in previous quarters, suggesting there’s been a financial trigger to cause this.


Maybe Google thinks Microsoft or Yahoo will be quick to make a move to buy up AOL’s Internet operations, thus bolstering the investment. (AOL parent Time Warner recently announced it would spin AOL’s dial-up business from the rest of the company – and is likely trying to sell both.) Or maybe Google just doesn’t want to eat the costs at this time. Or maybe it’s thinking about buying AOL at a premium just to avoid the fees.

Okay, that last one is a joke. Any charges Google is assessed for the bad investment would likely be relatively insignificant for the company. Still, any time a company is being looked at for purchase by Yahoo and Microsoft you have to throw Google’s name into the ring as well – especially when it already owns 5 percent of that company.

Keep an eye on:

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  • A decision that may allow U.S. companies to use their websites to release market-sensitive information could hurt firms that distribute press releases and give some investors an edge over others (Reuters)
  • DreamWorks SKG is near an agreement to get $550 million in funding from Indian billionaire Anil Ambani, a person with knowledge of the talks tell Bloomberg.

(Photo: Reuters)

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