Time Warner Plans to Spin Off AOL

Written by Ryan Lawler

Wednesday, April 29. 2009 at 12:50 PM EDT Post a comment

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With a new CEO in place at its AOL Inc. (NYSE: AOL) division, it looks like Time Warner Inc. (NYSE: TWX) is finally ready to unload the troubled Internet property.

In a regulatory filing issued this morning, Time Warner said that it would look to spin off "one or more parts of the businesses of AOL to Time Warner's stockholders, in one or a series of transactions."

While the board of directors hasn't made any final decision on what a spinoff would look like, Time Warner CEO Jeff Bewkes said on the company's earnings call that details would be released "very soon."

The news of an spinoff comes not long after Time Warner installed former Google (Nasdaq: GOOG) executive Tim Armstrong as chairman and CEO of the AOL division. Armstrong ran Google's North American and Latin American sales teams and was highly regarded there, but had little chance of ascending to the chief executive position with Eric Schmidt firmly entrenched as the search giant's head honcho.

Now it looks like Armstrong will get his chance to run a public company, but the job comes with several challenges. AOL revenue fell 20 percent in 2008 to $4.2 billion, with the company blaming its sagging performance on a drop in advertising and subscription revenues.

That weakness continued in the first quarter of 2009, with subscription revenues declining 27 percent to $393 million, from $539 in the prior year's first quarter. Meanwhile, advertising revenue at the division fell an additional 20 percent year-over-year, from $552 million in the first quarter of 2008 to $443 million in this year's first quarter. Altogether, AOL sales declined 23 percent, to $867 million in the quarter, and operating income before depreciation and amortization fell 37 percent, to $255 million.

Despite weakness in its AOL and publishing segments, Time Warner managed to beat analyst expectations for the quarter. The company reported net income of $661 million, or 55 cents a share, on revenues of $6.95 billion in the first quarter. That compares with earnings of $771 million, or 64 cents a share, on sales of $7.47 billion a year earlier.

Adjusted earnings per share in the quarter came in at 45 cents, which was down from 48 cents a share a year ago, but above the average analyst forecast of 38 cents a share. Revenues also came in higher than analyst forecasts, at $6.95 billion versus Wall Street's expectations of $6.78 billion for the quarter.