AOL's Q4 revenue plummets, drags down Time Warner

AOL's revenue fell 23 percent in the fourth quarter.

AOL's revenue fell 23 percent in the fourth quarter, including a steep decline in ad sales, as the Time Warner online unit continues to post disappointing results.

Revenue dropped to US$968 million in the quarter ended Dec. 31, 2008, from $1.25 billion in 2007's fourth quarter, Time Warner said Wednesday.

Revenue from Internet access subscriptions -- a business AOL has been phasing out for years -- fell 27 percent. More concerning is the 18 percent drop in ad revenue, AOL's primary business.

After a US$2.2 billion asset writedown, AOL had an operating loss of $1.9 billion, compared to operating income of $274 million in 2007's fourth quarter.

For the full year, AOL's revenue fell 20 percent to US$4.2 billion compared with 2007. Subscription revenue dropped 31 percent and ad revenue shrunk 6 percent. AOL also posted an operating loss of $1.1 billion, compared with operating income of $2 billion in 2007.

Last week, AOL announced plans to lay off 700 employees -- 10 percent of its staff -- this year.

Time Warner also disclosed that last week, Google informed it of its desire to liquidate its ownership stake in AOL through a request to exercise its "demand registration rights." That means Google, as an investor, is asking Time Warner to take AOL public.

"We're reviewing what we received and we're evaluating our options," said Time Warner's CFO, John K. Martin, during a conference call Wednesday to discuss the financial results. "Those options include proceeding with the request, delaying the decision for some time or moving ahead to potentially buy back Google's stake."

If Time Warner decides to buy Google's AOL stake, it would do so "at an appraised value which would be well below the value it was placed on at the time of the original investment," he added.

In December 2005, Google announced it would buy a 5 percent stake in AOL for US$1 billion, and that AOL would extend its agreement to use Google search technology and carry Google search ads for an additional five years.

However, AOL's fortunes have fallen considerably since then, and Google announced last month that it would write down the value of its AOL stake by US$726 million.

Google spokesman Andrew Pederson confirmed Martin's statement. "After careful consideration, we made the decision that we needed to exercise our rights now so we could be in a position to sell our interest when the timing made sense for us," he said via e-mail. "AOL remains an extremely valued partner, and we'll continue to work closely together to provide their users with the best search experience possible."

As a whole, Time Warner saw its fourth quarter revenue decline 3 percent to US$12.3 billion, dragged down mostly by its AOL, films and publishing units.

Time Warner posted a net loss of US$16 billion, or $4.47 per share, compared with net income of $1 billion, or $0.28 per share, in 2007's fourth quarter. The net loss includes a previously-announced $24.2 billion write-down of the company's AOL, cable and publishing assets.

For the full year, Time Warner grew its revenue 1 percent to $47 billion, but posted a net loss of $13.4 billion, or $3.74 per share, compared with net income of $4.4 billion, or $1.17 per share.

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