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Google's AOL Stake Down By Half?

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Back in December 2005, Google paid $1 billion to buy 5 percent of AOL from Time Warner, valuing AOL at a whopping $20 billion. Fast-forward to April 2008. According to The Wall Street Journal, AOL and Yahoo are in talks to combine the two companies. AOL is being valued at $10 billion for the sake of this new proposed deal.

Under the terms being discussed between Yahoo and Time Warner, the latter would fold its AOL unit into Yahoo and make a cash investment in return for about 20% of the combined entity, people familiar with the situation said. The deal, which wouldn’t include AOL’s dial-up access business, would value AOL at about $10 billion.

What that tells us:

* No way AOL’s loser dial-up business is worth $10 billion.
* In the last 25 months, AOL lost half its value.
* And Google took a bath. Their $1 billion investment (5 percent) is now worth exactly half: $500 million.

Of course, AOL has been selling off its parts for the past few years and has raised close to around $3 billion, including the $1 billion it got from Google.

7 Responses to “Google's AOL Stake Down By Half?”

  1. Re: Loser dialup business.

    Yes, the business is losing close to 200,000 subs per month, but I know of many outfits that would like to buy part or all of this base.

    Dialup itself is profitable. One problem, of course, is that this user base is afflicted with AOHell, a popular nickname for AOL software because it appears to be designed to prevent users from leaving.

    Nevertheless, some ISPs have become skilled at making the switch, as have services like TrueSwitch.

    The dialup base would be valued at # of subscribers at a certain date after purchase. Generally, at less than 1x annual revenue.

    If dialup ARPU is $15, and AOL has 8,000,000 to sell, that’s $90 x 8 million = $720 million.

    It’s not many billions, but it’s also not spare change.