Time Warner is moving forward with its plans to sell off AOL in pieces, and is finally ready to formally separate the AOL portal and advertising business from its legacy dial-up access business. But how much can it hope to get for these parts? When Google invested $1 billion in AOL a few years ago for a 5 percent stake, that valued AOL at $20 billion (which some people thought was an inflated figure even back then). Today, even after breaking it up, Time Warner will be lucky to get more than $7 billion for the whole lot.
Although it wants $10 billion for just the advertising and content business, there are only two serious potential buyers: Yahoo and Microsoft. And Time Warner is not making any friends at Yahoo by interfering with the selection of one of its new board members. If Microsoft turns out to be the only bidder, it would have no reason to offer much more than the $4 billion that the market is valuing the business at today. And, of course, all bets are off if Microsoft ends up buying Yahoo instead. (The dial-up business also only has one serious buyer: Earthlink).
According the WSJ (subscription required):
The Yahoo discussions have valued AOL at around $10 billion, excluding the dial-up business. In contrast, Time Warner’s current stock price — around $14 — suggests a value of no more than $3 billion to $4 billion for the ad-sales and content businesses, some analysts say.
Analysts value the [dial-up] business at only $2 billion to $3 billion, but Time Warner is expected to seek more than that in any sale discussion, according to people familiar with the situation. Despite having been in decline for several years, the business is still profitable and generates a predictable stream of cash. It serves 8.7 million subscribers, while EarthLink, the second-biggest dial-up service, serves 3.3 million, including broadband and Web-hosting subscribers
If Time Warner can convince Yahoo it still needs AOL, it might get closer to that $10 billion valuation for the online ad and content business. (Except that transaction would likely be structured so that Time Warner gives Yahoo cash in return for a large minority stake in the new combined AOL-Yahoo). According to comScore, AOL’s Platform-A is the largest online advertising network in the U.S. in terms of its reach, with 170 million individuals seeing its ads in June. Although Yahoo is probably bigger if you add together the reach of its advertising network with that of its own sites, depending on how much overlap there is. And many of those Platform-A ads, especially those from Advertising.com, are remnant ads sold at less than $1 CPMs (so volume is key).
(Disclosure: I own Time Warner shares).
AFter a long yahoo-Microsof saga will it be AOL-Microsoft saga this time ??
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There are still people who use AOL?
AOL still provides me with the same email address that I’ve had since I first got internet access in 1995-ish. I switched to Gmail 3 years ago, but I still keep it around because it’s free, and there are some people who only have that address, and AOL has had IMAP support forever (so I haven’t use their horrendous software in years).
It’s hard to believe that AOL was once synonymous with the internet in the minds of most people. Soon, the only sign that they ever existed will be AIM, which still has a stranglehold on the US market (though SMS has mostly replaced IM as the way kids inanely communicate).
AOL was the Google of the ’90s. It’s tough to imagine a future without Google, but anyone would have said the same about AOL in ‘96. It makes you wonder what other big companies today will be in the dustbin in 10 years (other than Yahoo!).
@Nicki B – I’d suspect you’ve seen a platform a served ad at least once already today.
Well, I meant more the dial-up service they offer.
I’ll take that bet. Noscript + Ad Blocker Plus = No ads. Ever.
@alex – … and that view may have earned AOL the royal sum of $.0001 ($1 CPM, 10% margin)
What’s interesting to note here is the Instant Messaging services. AIM is still one of the most popular instant messaging services. With a Microsoft purchase will all the AIM users move into MS’s Messenger service? Same for Yahoo? Honestly, the consolidation of IMs and the increased market share this might bring sounds to be the most lucrative piece of this whole purchase.
Trae
http://www.traeblain.com/
No one has monetized IM traffic – it is as worthless as social network inventory. Need to let go of “AIM is huge” – SMS and wall posts have all the momentum…
Is there really still a ‘dial up’ business?
Exactly. IM traffic is pretty much a waste of an investment.
Normally, I’d agree. However, if IM traffic also becomes microblogging (a-la Twitter), and if those microblog pages have conversations (a-la FriendFeed), and if those pages have text or display ads, then — perhaps — the traffic isn’t as much of a waste as might be imagined.
AOL has three things that Yahoo should prize:
(1) Lots of traffic including search queries
(2) Lots of proprietary content
(3) Killer advertising assets under Platform A that any of the major Internet companies would love to have: Ad.com, Quigo, Tacoda & Adtech.
Yahoo should buy them but they seem to whiff in most M&A discussions.
Being the a bigger player, microsoft is more likely to buy AOL as they want a bigger share in the online content and ad business. Yahoo is still into the business and if microsoft is trying to buy it too then it also leads to the conclusion microsoft would be the no. 1 bidder.. But how much would they bid?
Hmm .. how much did M$ pay for aQuantive whatever ? what was the reach that had ? Don’t see it in the Top 10 list above . advertising.com is the killer asset that M$ will bid for .. yahoo + aol will make a killer combination in the ad market and can take on google + doubleclick .. so expecting a minimum of 10 billion$ for ad business. the content business is decent enough for 2-3 billion and dial up .. i hear earthlink has 3.3 million subscribers .. aol still has approx 8 million .. so make that another 3-4 billion .. i am looking at 15 billion or more…
@ Michelle
Yes there is in some areas of the country DSL & Cable are not available and your only options are either Dial up or Satelite and Satelite cost like 400% more than DSL and Cable so you guess which people rural areas will pick.
@kk
This kind of information is critical to conversations ar TC where bloggers and posters alike tend to assume that the entire world is just a Super-Sized Silicon Valley, in this case, a place where everyone who is anyone has a choice of high speed access options.
Wait a minute – is this still the AOL Time Warner that owns Warner Bros? The studio that just released The Dark Knight?
I remember watching this “historic” merger happening on TV in the middle of dotcom crazy time. This is really crazy!
Jerry – you stick to your guns, you can’t do any worse than these guys.
As usual Erick, another fascinating story.
a media company selling off its digital media assets. makes you wonder. obviously there is no light at the end of the AOL tunnel.
thank god no more AOL spam cd’s in the mail.
imagine they just bought bebo for 850 million cash and now they want to sell. who the hell is in charge over there. the sooner they disappear off the radar the better.
If Earthlink is a monopsony in this situation, why should they pay more than $1.38 USD for part of AOL?