AOL CEO Tim Armstrong has begun to articulate a vision for AOL’s future, which is to become a 21st Century content publishing company.
If Tim wants to give himself the best chance of delivering on that vision, he will likely do two things quickly:
- Sell off anything that doesn’t support that vision
- Buy anything affordable that does
In the first six months of 2010, therefore, we expect that AOL will be busy on the M&A front.
We don’t have good performance numbers on the current value of the various assets Tim might dump, but a back-of-the-envelope analysis suggests that AOL should be able to raise at least $1 billion of cash from asset sales. He will then likely be able to plow at least half of that into new acquisitions. Most AOL valuation analysis we have read ignores the value of these asset sales.
ASSET SALES: What and How Much?
To become a successful 21st Century content publishing company, AOL needs 1) a content production engine, 2) a content distribution engine, 3) a content monetization engine. Anything that fits into those three buckets, therefore, should stay. Anything that doesn’t should go.
AOL’s strength, meanwhile, is focused on the U.S. market. Anything international that isn’t dominant, therefore, should also go.
The new AOL, in other words, should include:
- US Content production: All of AOL’s various web sites and the publishing platform. This will include the blogs (Engadget, et al), the local sites (Patch)
- US Content distribution: AOL ISP, AOL home page, AIM
- US Content monetization: Premium ad sales
So what does that leave AOL to sell? And how much might the sold assets be worth? Some ideas, with conservative estimates, below:
TO BE SOLD:
MapQuest: ~ $300-$500 million. MapQuest used to lead the Internet mapping business, but no longer. AOL does not need to own a flagging mapping company. It should use best of breed maps to support its local content efforts. If it’s not going to invest a ton to make MapQuest great again, therefore, it should just sell it.
Bebo: ~ $200 million. Previous management just blew $800 million buying a social network with a strong position among UK teenagers. UK teenagers are irrelevant to AOL, which is mostly US-based. Bebo should immediately be sold.
ICQ: ~ $200 million. ICQ is still a relevant international messaging service, but AOL is primarily focused on the US. So ICQ should go.
AOL international properties: ~ $200 million Any of the international portals that can’t be No. 1 or No. 2 in the market should go.
Advertising.com: $500 million – $1 billion. This one is a toss up. If AOL wants to build the 21st Century publishing business, it should monetise it with premium ad sales, not a low-price remnant inventory engine. That said, Tim Armstrong comes from Google, which sells both its own inventory AND others (through AdSense), and Tim may want to remain in this business to give his salesforce greater clout with advertisers. If he decides to sell Ad.com, however, he should be able to get at least $500 million for it and probably a lot more.
Add all that up and you get $1-$1.5 billion.
WHAT WILL AOL BUY?
AOL will likely acquire anything that helps the content, distribution, and monetization engine described above.
This will likely include:
- Local content companies: The online sections of dead newspapers, thriving local sites, blog networks etc.
- Thriving new-age content companies. Gawker Media, Huffington Post, et al, come to mind, as do Associated Content, eHow, HowCast, Mahalo, etc.
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