In its latest 10Q, Google (GOOG) admits that its $1 billion investment in AOL “may be impaired” (note spotted by sharp-eyed Rafat Ali). This is a polite way of saying that the investment is now worth a lot less than the $1 billion Google paid for it–and that, by extension, AOL is worth a lot less than the $20 billion valuation Google placed on it in 2005 when it bought 5% of the company.
Of course, we knew that already. The highest estimates of AOL’s value these days usually top out at around $10 billion ($15 billion if Microsoft goes into a testosterone-fuelled bidding-war rage). This would put the value of Google’s 5% stake at, say, $500 million to $750 million.
What’s most interesting about Google’s AOL note, however, is that the company believes the impairment may be temporary (expressed below as not believing the impairment is other than temporary). This is a polite way of saying that Google is dreaming that AOL might actually recoup some of its vaporized value someday:
we believe our investment in AOL may be impaired. After consideration of the duration of the impairment, as well as the reasons for any decline in value and the potential recovery period, we do not believe that such impairment is “other-than-temporary” at June 30, 2008 as defined under FSP 115-1. As a result, our investment in this non-marketable equity security is carried at cost on our Consolidated Balance Sheets. We will continue to review this investment for impairment in the future. There can be no assurance that impairment charges will not be required in the future.
Google is not a dishonest company, so it would be interesting to hear Google’s finance team defend this position. (The folks at Time Warner would no double be interested, too, especially with AOL informally on the block.)
In any event, if and when Google decides to admit that AOL will never be worth more than $20 billion again, it will have to take an impairment charge. Given Google’s fire-hose of profit, this will–for all practical purposes–be immaterial.
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