Its reported that they lost 100 billion last year - the biggest loss in business history. I’m wondering how they managed to do that.
From all those damn gazillion hours free CD’s they littered the world with.
Grrrr…
I often wonder how large company’s lose billions of dollars too.
It’s like American Airlines. Thousands of people give them hundreds upon hundreds of dollars every damn minute every damn day, and they go broke?
I thinks it more like, “Well for 5 years we made a billion a year in profits, but this year we only made 700 Million”. I think companys interpret this to mean they lost 300 Million, which is not true, they just didn’t make 300 Million, they never had it to lose it.
But if your talking stock value, if you never withdrawled it you never really had it either. It was temporary, until cashed out. If I invest $100 bucks and make $50, my total is $150 right? But if it drops back to $100, I didn’t lose $50 bucks, I never withdrawled it. Now if I withdrawled it and dropped $50 bucks on the floor, then yeah, I lost it.
If that make sense.
Turner took a hit too.
"So for all of 2002, AOL lost a record $98.7 billion, $22.15 per share, on revenue of $41.1 billion. In 2001, the company lost $4.9 billion, $1.11 per share, on revenue of $38.5 billion.
Those figures clearly weighed on Turner. In an interview with Mike Wallace to be broadcast on CBS’s “60 Minutes II” on Tuesday, Turner estimated that he lost between $7 billion and $8 billion from AOL Time Warner’s sinking stock."
More at:
http://www.montereyherald.com/mld/montereyherald/5060291.htm
Half of the 100 Billion bucks was stock market losses. When AOL and Time Warner merged the merger was paid for with AOL stock. Now that AOL stock has gone down a lot things are worth less so they have to report that they have a lot less in assets. It is similar to a company that owns office buildings. If the value of the office buildings goes down then the company has lost money.
Yes, but why did AOL stock take such a huge fall? I can understand that they failed to live up to expectations, but surely even investors took the broadening ISP market into consideration (and AOL’s reluctance to tap into the broadband sector). AOL’s customer base didn’t fall dramatically, so even if it was a poor performer, 100 billion seems way too high a figure to just “lose”.
AOL’s stock fell because it was horrendously overinflated to begin with, and because investors lost confidence in Internet companies when the tech bubble blew up.
The question is not so much why did AOL stock fall. But instead why did it rise to such lofty hights.
All of it was. They wrote off $45B this quarter, but they had previously written off $54B earlier this year. They actually made money in operating earnings.
A lot of companies have been taking large writeoff of late. Partly due to the dot-com bust (e.g. JDS Uniphase) but also because accounting rules have been changed, to require firms to update their asset value on a more timely basis.
I can’t find a cite on this and I don’t recall the details, but maybe a year ago, somebody discovered AOL had been valueing in their financial statements those free CD offers thru the mail and at stores as paid subscribers somehow.
Interesting. I thought that 1/2 was write down on stock loss and the other half was accounting rule changes that I did not understand.
I just read in the NY Daily news today that Ted Turner is resigning.
I didn’t follow the link, but what happens to the US 2.2B pledge that he made to the UN over 10 years ?
No, its all the same - one triggered the other.
The term “stock loss” itself is a bit misleading. Its not the loss of value of AOL stock - this no longer exists. And the AOL Time-Warner stock decline does not directly connect to the write-off.
Essentially it has to do with the value of intangible assets. When AOL was flying high it had an enormous market cap, because people believed it had the potential to make enormous sums of money. But it did not have “hard assets” that were worth anything remotely close to that market cap. What it has was a network of subscribers, brand name recognition and the like. To the extent that these are thought to represent the opportunity for future revenue they can be quite valuable indeed. But if it should turn out that they do not hold the potential for enormous revenue, their valuation drops enormously.
So when a company like AOL (or AOL Time-Warner) is setting its “book value”, they value their intangible assets at what they (& their auditors) believe to be the true value of the company’s prospects. When a merger takes place, this is generally set at the purchase price, so that the merger has a neutral impact - cash (or stock) paid = assets acquired.
What happens eventually is that it can become apparent that the valuation was too optimistic about the companies prospects, and overvalued the company. In this case, it is true that Time-Warner overpaid for AOL (or, more accurately, undersold to AOL). But the write-off would have happened regardless of the merger (except it would have been an AOL thing). Essentially, people came to realize that AOL (& technology in general) was not a ticket to gazillions of dollars, and they erred in setting the value of these assets too high. So down they come.
The rules change requires companies to update the value of their assets in a more timely fashion. This has of late had the impact of causing a lot of huge paper losses. If the economy rebounds, it could cause huge paper gains.
I should correct this. I’m not sure what AOL’s book value was prior to the merger. To the extent that it was below the merger price, the writeoff would have been smaller. All I’m saying is that such things can happen in the absence of mergers as well. They’re probably more common with mergers, as companies tend to pay top dollar for acquisitions, requiring a high intangible valuation.
Here’s a good link (about the first AOL write-off & general principles) New accounting rules cause havoc for big corporations
I think they left it in their other pants.
It’s not too hard to figure. They are certainly taking in scads of cash but they are likewise spending scads of cash evey damn minute of every damn day.
Think its cheap to operate an airline? They have hundreds of planes. Those planes need to be bought, fueled, pay landing (airport) charges, maintained, pilots, cabin crew, ground crew, baggage handlers and so on. Add to that a payroll of tens of thousands of other employees behind the scenes. Add in huge legal fees (I wouldn’t be surprised if they are handling a few hundred lawsuits at any given time). Taxes, health benefits, retirement benefits…
Honestly it is remarkable they can offer tickets as cheaply as they do.
One more thing I don’t think that anyone has mentioned yet… The media is somewhat misleading in trumpeting it about as losing 100 billion dollars. The company wrote it off on the books because of the overvalued stock which has declined 70% or so. AOL Time Warner itself actually made a decent profit when you calculate money spent vs money recieved. So while the 100 bil goes as a loss on the books, the company took in more money than it spent this year, and thus has more free cash to play with.
Just as an aside… the AOL division has been in the black for many years. For some reason, most people seem to think that AOL operates at a loss, when this is not the case. The media doesn’t help by saying how “poorly” AOL is doing. Sure, it’s doing worse than it did three years ago, but it’s still making a steady profit of millions a quarter. It isn’t doing as well as it was supposed to when the merger was agreed upon, but it’s doing better than many other Time Warner divisions.
My own personal opinion about Turner… I was extremely happy when he announced leaving. He’s polarizes the company, and is directly responsible for spearheading the effort to drive out all sorts of good AOL people like Bob Pittman and Steve Case. It’s about time he left. I guess the board finally came to their senses and said “It’s about time for you to leave, Ted.”
-Psi Cop
Unless the web reports were wrong or things have changed since yesterday, Mr. Ted isn’t leaving the company or the board. He’s simply will no longer be Vice-Chairman.
Apologies. I should have said “Vice Chairman.” But I’ve seen a few reports saying that there is a good chance he will not run for renomination to the board next time. He may not be stepping down from the board directly, but I think he’ll sort of fade out over time. I refer you to this CNN article, specifically this quote:
Again, in my own opinion, good ridance.
-Psi Cop