Friday, July 19, 2002

AOL for Sale

AOL's stock price dove again today on news of the management shake-up and part two of the Washington Post articles on the company's revenue recognition "issues." If that's what they are called. If you don't have the time to wade through the reams of newsprint that have been devoted to the company's woes, here are the key points:

1. The company's stock is now way under-valued. If you do some simple calculations on just the publishing and media properties, using conservative multipliers (8 x cash flow), AOL is a $15 stock. And that's without factoring in AOL itself or the music business.

2. The new management team has no idea how to get the most value out of the combined entities. Or if they do, they don't want to spend the money required to develop a fully interoperable information technology system. A fully interoperable information technology system can, for instance, recognize a "Sopranos" customer on HBO (and Time Warner Cable) and share that information across all the owned entities. Warner records could then sell that customer a Sopranos CD. Time Warner Books could sell "Sopranos" books/scripts to that customer. Time Warner video could sell that customer "Sopranos" tapes or DVDs.

It is the road to more revenue. It's not the only road, but in the long run, it's the most efficient. Certain "Time Warner" executives continue to sound almost hostile to the idea of a company-wide interoperable information technology platform.

3. AOL itself will be sold and probably soon. It is clear that the new managers have no regard for the company. Since the parent company is drowning in a sea of debt, unloading AOL seems a likely outcome.

4. The New York Times has been slaughtered on this story by both The Wall Street Journal and The Washington Post. Mr. Raines must look at that vast expanse known as "Business Day" and wonder to himself: "what do all those people do all day long?"