What AOL's Nov. 5 Results Mean to Its Yahoo Escape Hatch
One of the more interesting quarterly earnings calls to watch carefully is going to be Time Warner’s in two weeks.
Why? Well, in the digital space, it’s because of its long-suffering online unit AOL and what results it will show.
More importantly, though, is what AOL’s performance will mean for the attempts Time Warner CEO Jeff Bewkes has tirelessly been making to trade it away.
The media giant will announce its third-quarter results Nov. 5 at 10:30 a.m., Eastern time.
Last quarter’s results were not too promising, to say the least, and it was due in large part because AOL dragged Time Warner (TWX) down badly.
There were declines in both revenue and operating income at AOL, which were luckily offset by strength in Time Warner’s cable television and movie studio divisions.
AOL saw its revenue drop to $1.1 billion, a 16 percent dip, with operating income off 36 percent, to $230 million. There were more subscribers lost from its slowly dying dial-up Internet service–incredibly AOL has lost 14 million in the last three years.
And that was planned, after AOL’s home page and email went free. What was not so figured out was how badly its business would be struggling to make a better margins from advertising, even as its access business dwindled.
Time Warner began to separate the two sides of AOL, an effort still in process, in order to sell them both off.
John Malone of Liberty Media (LINTA) said this summer that he would make a swap for the cash-generating access business, and there is also Earthlink (ELNK) and United Online (UNTD) in that mix.
As to the rest of the AOL business–still an advertising and content behemoth, despite its woeful descent over the years in Time Warner’s care–Bewkes has been trying to pawn it off for years now in a variety of deal-chatting with companies like News Corp. (NWS) and Microsoft (MSFT). (News Corp. is the owner of Dow Jones and this Web site.)
And, principally these days, Yahoo, with which Time Warner has been locked in endless discussions about a possible merger for months.
But, while every week the AOL side leaks the breathless news that the union is just about to be struck, that has yet to come to pass.
Still, even this past week, various execs from both companies have been meeting, discussing what the new Yahoo-AOL combo might look like.
The deal, on some level, makes sense, putting together the top graphical ad businesses online and uniting powerful content assets, as well as dominant online communications offerings.
The pair also share a strong relationship with search powerhouse Google (GOOG)–it owns five percent of AOL and does its search, and is trying to launch a controversial search ad outsourcing deal with Yahoo.
But a possible merger of AOL and Yahoo also has a strong stink of desperation about it–of two struggling companies trying to stand together so they won’t fall apart.
Of the pair, despite its weak results last week and endless turmoil over the last year, Yahoo (YHOO) is decidedly the stronger business, with obvious prospects of revival.
But its moribund stock, now hovering in the $12 a share range, has put a damper on talks, given how much Yahoo would have to give up to get AOL.
For its part, Time Warner is foolishly holding onto an $8 to $10 billion price tag from days long gone by. And if results at AOL continue on the trajectory they are on–how could they not, given the weak economic situation?–Bewkes might want to get a little more flexible.
Because things are only going to get worse. So, if a Yahoo-AOL deal is to be struck, sooner or later, for Time Warner, it had better be sooner.