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AOL: Running Out Of Time

How much longer does AOL have to prove its worth before Time Warner shareholders revolt? Not long, says Jordon Posner of Matrix Asset Advisors. "It's important that they drive improvement in this business fast. Otherwise they'll wind up with a wasting asset."

AOL has lost 50% of its dial-up subscribers since effectively telling them to find a new ISP more than two years ago. Meanwhile, ad revenue growth hasn't sufficiently covered the mounting losses: fourth quarter ad sales rose a paltry 10% in the fourth quarter of 2007, and growth is expected to decline to 7% this year, according to UBS analyst Michael Morris. "AOL is a drain on management," he said. "I don't think the direction that they're going with AOL right now is ultimately going to drive growth above the average." Funny enough, Morris actually recommends buying Time Warne due to the strength of its cable and film properties.

Even so, AOL is staking its future on a new advertising system called Platform A, which marries its strong Advertising.com unit with new ad network properties like Tacoda and Quigo. As Bloomberg News says, "success may lead to AOL's sale," as Tim Warner CEO Jeffrey Bewkes has said he's open to merging AOL with a rival. Right now, UBS' Morris reckons that AOL is now worth $12.9 billion, about one-tenth of what it bought Time Warner for in 2000.

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