Google’s $1 Billion Investment In AOL “May Be Impaired”

Posted Aug 7, 2008

Google Inc. (NASDAQ:GOOG) filed a report with the SEC this yesterday indicating that the 5% stake acquired in AOL LLC for $1 billion “may be impaired.”  Impairment means that an acquisition or investment is wearing away.

This may affect Google’s profits on their accounting books. 

“There can be no assurance that impairment charges will not be required in the future, and any such amounts may be material,” stated a Google spokesperson regarding the AOL investment.

One of the primary reasons for Google’s investment in AOL was to beat Microsoft Corporation (NASDAQ:MSFT) in an advertising bidding war.  Google was able to make deals with MySpace, Friendster, and AOL before Microsoft.  However, Microsoft won exclusive advertising deals with Facebook and Digg.  Google invested the $1 billion for 5% ownership in AOL in December 2005.

The bidding war drove AOL’s valuation up to roughly $20 billion.  Analysts believe that AOL’s values is now below $10 billion.  Within the last week, Time Warner Inc. (NYSE:TWX) stated that they were able to separate AOL’s dial-up entity from AOL’s Internet content and advertising entity on paper.

Earthlink Inc. may be a contender in buying AOL’s dial-up unit and both Microsoft and Yahoo! are rumored to be eyeing AOL’s online operations unit.  As a major shareholder, Google could also request Time Warner to buy back their stake in AOL or push for AOL to go public.  Google has not indicated the pursuitment of any of those options though. 

AOL was worth $240 billion at one point before the dot-com bubble burst.

Related Link:
1. Associated Press