AOL Spins Off from Time Warner: A New Era of Online Competition

Strategic Insights -

Time Warner Inc.'s announcement to complete the spin-off of its web media unit, AOL Inc., marks the end of their seven-year marriage, with AOL trading independently on December 10, 2009. In a bid to revamp itself as an independent online company, AOL will now focus on capturing online readership by increasing content offerings and providing an online advertising platform. The company has outlined a restructuring plan to lay off one-third of its staff, reduce costs by $300 million, and potentially shed some assets. AOL's revenue dipped 23% to $777 million in the third quarter of 2009, resulting from sustained subscriber losses and an 18% fall in advertising revenue.

Key Takeaways:

  • AOL will receive a tax-free dividend from Time Warner as part of the spin-off, allowing its investors to receive one AOL share for every 11 Time Warner shares they hold.
  • AOL will begin trading independently under the symbol 'AOL' and its shares fell 0.6% to close at $23.52 on December 10, 2009.
  • Time Warner's shares climbed 4% to close at $30.45 on the same day.
  • AOL owned and operates more than 80 branded and niche content sites, including Spinner, Fanhouse, Engadget, MapQuest, and Bebo.
  • The company will focus on increasing content offerings and providing an online advertising platform to compete with Google, Yahoo!, and Microsoft in the U.S. market for online advertising valued at $29 billion.
  • AOL is evaluating options to shed some of its assets and plans to lay off approximately 2,500 employees to reduce annual costs by $300 million.

Statistics:

  • AOL's revenue dipped 23% to $777 million in the third quarter of 2009.
  • The company lost nearly 438,000 subscribers during the period, resulting in a 29% drop in subscription revenue.
  • AOL's advertising revenue fell by 18% during the third quarter of 2009.

Sources:

  • Zacks Equity Research: "AOL Spins Off from Time Warner" (date not specified)
  • Zacks Investment Research, Inc.: "About Zacks Equity Research" (date not specified)
  • Time Warner Inc.: "Time Warner Announces Completion of AOL Spin-Off" (December 9, 2009)
  • AOL Inc.: "About AOL" (date not specified)
  • Google Inc.: "Google's Investors Relations" (date not specified)
  • Yahoo! Inc.: "Yahoo's Investors Relations" (date not specified)
  • Microsoft Corporation: "Microsoft's Investors Relations" (date not specified)