Aol. starts life as a new public company this Wednesday. Not as the once all conquering AOL, but as the newly re-branded, seemingly apologetic Aol. As it departs from the Time Warner stable, I can imagine the TW sentiment is somewhere on the harsh side of “good riddance to bad rubbish”. It would be impossible to calculate the opportunity cost at TW over the past decade by the countless failed attempts at integrations, acquisitions, management shuffles and divisional reorganizations. Even as Aol. stumbles toward its reimagined future, it remains burdened by its legacy, and looks to jettison a third of its workforce – 2500 employees – in the countdown to its IPO.
Back in the post-merger honeymoon period, and just before the crash in March 2000, AOL commanded a market cap of $176 billion US. In 2005, Google acquired a 5% stake for $1 billion, slashing AOL’s valuation to $20 billion – effectively dropping more than $31 billion per year over that 5 year period. In July 2009, AOL bought back Google’s 5% stake for $283 million, taking a further downgrade to peg its valuation at $5.66 billion. In recent weeks, with revelations about the degradation of their Access business (despite accounting for 60% of their EBITDA) and their weak ad revenues, the new Aol. has lowered the IPO mark to a mere $3.2 billion. In 2000, AOL was yes, wildly overvalued and ranked as the number 9 company in the US by market cap in the table below. If it enters the market at $3.2 billion, it will land around number 428 – down over $17 billion per year in that period… a decline that makes GM’s fall look like a slight stumble in comparison.
| Company | 2000 Rank | Market Cap 03.2000 | 2009 Rank | Market Cap 03.2009 |
| Microsoft | 1 | 586,196 | 3 | 163,319 |
| GE | 2 | 474,955 | 10 | 106,765 |
| Cisco | 3 | 308,964 | 13 | 97,866 |
| Wal-mart | 4 | 285,152 | 2 | 204,364 |
| Intel | 5 | 277,095 | 19 | 83,596 |
| Exxon | 6 | 265,893 | 1 | 336,524 |
| Lucent | 7 | 237,667 | - | - |
| IBM | 8 | 201,014 | 9 | 129,995 |
| AOL | 9 | 176,266 | ~428 | 3,200 |
| Citigroup | 10 | 169,917 | 133 | 13,854 |
(Market Cap in $mm US)
As the new Aol. launches this week, the continued deterioration of its access business as consumers migrate away from dial up is inevitable. AOL has only managed to make money from Access, and has only maintained users through Access, the stickiness and switching challenges of an AOL e-mail address and AIM. Content as a standalone is not a driver for their customers, only on the back of Access. Lose the Access customers, lose the eyeballs for content and the corresponding ad revenue. I’d like to see if, and how Aol. could turn it around at this point, but lacking positive momentum, unique and proprietary IP, the allure of some mystical reality distortion field or viral expansion loop, I suspect Aol. will continue to see a decline in their valuation beyond their December 9th IPO.
