Google’s $1 billion investment in AOL is taking on water.
The Internet search giant warned in a filing with the Securities and Exchange Commission late Thursday that the value of its 5 percent stake in AOL may be worth less than what it initially paid for it, and write-downs associated with the “impaired” investment could be coming, pending further review.
Analysts estimate the value of Google’s stake has shrunk to between $750 million and $500 million.
Investors shrugged off the warning, however, as Time Warner moved closer to an anticipated sale or spin-off of AOL.
Shares in Time Warner rose yesterday $1.10, or 7.59 percent, to $15.60, while Google shares grew $15.89, or 3.3 percent, to $495.01.
Time Warner earlier this week noted it will be able to operate AOL’s dial-up access and ad businesses separately starting in 2009. The split clears the way for a sale of one or both divisions.
Google’s 2006 investment in AOL – its largest search partner at the time – gave the Time Warner-owned Internet portal an implied valuation of $20 billion. Google made the deal, in part, to ensure the renewal of its search agreement with AOL, which was in the process of expiring.
Since then, AOL’s performance has struggled amid the shift from dial-up to broadband, stiff competition for consumer attention online from rivals like Google and others, and more recently, a softening ad market.
Time Warner said earlier this week that AOL’s second-quarter revenue fell 16 percent. Ad growth was just 2 percent, trailing some analysts’ growth estimates, while subscription sales dropped 29 percent, paced by a loss of 604,000 dial-up customers.
