Google’s AOL Investment


Hmm, really?  I could have told you that.

Google believes $1B investment in AOL is crumbling - USATODAY.com

SAN FRANCISCO — In an assessment that could lead to a substantial charge against its future profits, Google (GOOG) believes its $1 billion investment in advertising partner AOL is souring.

The Mountain View, Calif.-based company disclosed in a quarterly report filed late Thursday with the Securities and Exchange Commission that the 5% AOL stake that it bought in 2005 “may be impaired.” Impairment is an accounting term used to describe an acquisition or investment that has eroded.

Unless there is an about-face, the acquiring company eventually must absorb a charge on its books to account for the diminished value of its holdings.

Google acknowledged for the first time that it might have to recognize a loss on its 5% stake in AOL, whose struggles have made it a financial albatross for its owner, Time Warner (TWX).

“There can be no assurance that impairment charges will not be required in the future, and any such amounts may be material,” Google said of its AOL investment.

A Google spokesman declined further comment Thursday.

As the Internet’s most profitable company, Google could absorb a fairly large charge without too much pain. In the first half of this year, Google earned $2.55 billion.

Google bought its stake in AOL largely to prevent one of its largest advertising partners — AOL — from defecting to Microsoft. The bidding war helped drive up AOL’s implied market value to $20 billion, based on Google’s investment.

Some analysts have suggested AOL may be worth less than $10 billion now. Google didn’t estimate in its SEC filing what it believes its stake to be currently worth.

In all fairness, a lot has changed since 2005, including Google and the new paid search realm they dominate.  It probably looked like a great deal at the time but well, I guess not even 10,000 free hours could fix.


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