There was a time when it was MicroSoft that always won, always made the right moves. What they touched turned to gold, or whatever currency you prefer. But ever since it went public the golden touch has belonged to Google. By and large it still does of course, but when Google agreed to sell back its share in AOL to Time Warner today at a loss of $717M it was definitely not a moment reminiscent of King Midas.
I never understood the purchase at the time. Google spent $1B for a 5% share of AOL at a time when AOL was going backward. Yes, it had cash flow and customers, and was spending its time figuring out how to leverage that into a world without dialup. Now that’s not necessarily a bad thing, Earthlink (NASDAQ:ELNK, news, filings) has done ok with it since they stopped trying to shoot the moon and started running it for cash flow. But Google wasn’t in the business of investing in dying cash cows, so why bother?
Now Time Warner intends to spin off AOL by the end of the year, and this deal values them at $5.7B even still, more than three times the marketcap of Earthlink and United Online combined. They still have over $3.4B in revenue and run-rate EBITDA seems to be in the neighborhood of $1B. Now that may be nothing compared to the AOL at the height of the bubble, but it’s not chump change either. Actually it surprised me just how big they still are, I hadn’t looked in a long while and the media coverage is so negative I assumed it was much worse. Of course, all the growth indicators are pointing in the wrong direction. I’ll be curious to see what path they choose to take from here.
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