Make no mistake about it–AOL is 50/50 IMHO to go bankrupt in the next year or two. That’s how deep in debt they are. And they can brag about getting refinanced this week, but where are they gonna get the revenue to keep paying the banks? They are not growing. Their revenue stream is drying up.
CNN may be right there in line with them when it comes time to file.
Erm, as has been pointed out, AOL/TW has been showing a profit. The loss is from AOL’s stocks crumbling. Unfortunately for TW, they merged just as the bubble burst… bought high, and lost out, basically.
I wish they would collapse, though. It would be funny… but AOL wouldn’t disappear, though I’d expect their subscription numbers to drop (mostly to Earthlink/Sprint and MSN)…
IzzyR - That was very lucid and well explained. As an unfortunate AOL stock holder, it helps to understand.
Thanks
Here’s a story on how JDS Uniphase managed to lose $51 billion in 2001 in much the same way…
http://www.fool.com/news/foth/2001/foth010808.htm
Of course, that’s now pocket change thanks to the collective geniuses at AOL/TW.
It was actually the perfect time for AOL to buy Time Warner… for AOL. It was trumpeted as a merger, but AOL actually bought out the largest media company in the world. I believe the ratio was 55-45, meaning that the AOL stockholders controlled 55% of the company. Unfortunately, Time Warner people have been hitting back over the past couple years, and slowly inserting anti-AOL old-timers into the higher positions.
With the loss of Steve Case, there is now no one left from AOL in the upper management (aside from a few “regular” board members). So the counter-takeover from Time Warner is more or less complete. Frankly, there wasn’t anything wrong with the purchase/merger. The problem is that there was nothing that worked right, either. Each section is still more or less independant and not integrated.
To those like samclem, I say again that AOL-TW is not losing money. The 100 billion writeoff is based on the stock price and on the books only. On the other hand, if stock had soared 400% after the merger (hypothetically), they would have put down a multi-billion dollar profit… again, on the books only. Frankly, you need a degree in accounting to understand all the ins and outs of it, and I am certainly not an accountant.
Operating profit:
AOL brings in millions of dollars a quarter. They have 35 million accounts worldwide, and that generates a large stream of revenue. Also under the AOL umbrella are names such as Netscape, Compuserve, Moviefone, Winamp, and Mapquest. Not to mention both AIM and ICQ. AOL holds a patent on instant messenger technology, by the way. They quietly acquired it last year, through their ICQ division. Imagine the benefits of that patent, should they choose to exploit it.
New Line Cinemas is a name I’m sure most people are familiar with. Their latest big pictures have been a couple of films with the names of “Fellowship of the Ring” and “The Two Towers.” Wanna guess what they picked up in profit?
Warner Brothers Pictures is another movie studio I assume people are familar with. While the Harry Potter movies haven’t been quite as successful as Lord of the Rings, they still turn a hefty profit. And they have a few other movies now and then too, of course <grin>.
Time magazine, Life magazine, Sports Illustrated, and dozens of other magazines are all under the AOL Time Warner umbrella. They turn a small consistent profit. Not big like New Line, or even the AOL division, but steady.
Then you have the broadband services, other news media, CNN, Warner Music, Atlanta Sports Teams, and many other divisions. Not all of them turn an operating profit, but most do. Any more questions about whether AOL-TW is in the black or not?
-Psi Cop
The merger was great for the former AOL shareholders - it was a disaster for the TW shareholders. Both these groups have lost the same since the merger, but it is the collapse of AOL’s valuation that is driving the losses. In the absence of a merger TW would be higher than it is now and AOL a whole lot lower.
Essentially the TW shareholders traded half their shares in a solid media company for shares in an overvalued tech stock. AOL shareholders did the opposite.
The fact that TW execs now control the board means absolutely nothing to the shareholders - their money is gone regardless.
The posted question raises an interesting question… The money they claim they lost probably never existed, but it was more like an estimated value of worth. So, can they can still write this off as a loss???
I think today’s government is by the corp., for the corp., instead of by the people, for the people… This is not what our founding fathers envisioned at all. Instead of one tyrant king ruling 13 colonies, now we have nothing but a plethera of greedy worm-like CEO kings controlling 50 colonies. - Jinx
And the moral: Always check your pockets before you take your pants to the cleaners.
Did AOL claim the profits when their stock went up in the first place?
No, because that was their stock making regular shifts up and down. It’s only when they made a purchase with that stock – Time Warner – that it suddenly had to be put into the books the way it has. Stock in itself isn’t profit or loss, until you use it to do something.
By the way, I did say the merger was good for AOL, but not necessarily TW <grin>. The first sentence of my last post said that. I stand by what I said about nothing being wrong, though, with one exception. Stock price. Otherwise, the company is no less valuable than it was before in terms of profits and operations. It’s actually a bit better off.
-Psi Cop
I was watching Fox news yesterday they stated they have to apply the new accounting rules which specify they must only give the actual value of their assets, etc, which came to about $55B & thats what they are worth.
I disagree. The depressed stock price is an indication that people no longer believe that its prospects are as bright as they previously believed. Now in itself, this is in part just a matter of people changing their minds. So that AOL was never that valuable to begin with, and the company has not declined in value. But the problem is that they have $26B in debt. So they are very sensitive to what the market thinks. If the market is convinced that you are going to be making money hand over fist they will be falling over themselves to lend you money. If they suddenly become afraid that you might not make nearly as much, the spigot can dry up in a hurry. As we know, even profitable companies that have positive balance sheets can be driven into bankruptcy if the lenders don’t want to refinance their loans.
Not much short term risk of that here. But they are looking at the real possibility of a credit downgrade, which would cost them some serious bucks. And they’ve already said that '03 earnings will be flat. Things are not looking good.
The problem is that the majority of stockholders and stockbuyers are the “mob.” They don’t understand accounting and profitability and loans and so on and so fourth. They see “Makes X dollars” and “Loses Y dollars” and that’s all they care about. In addition, the media tends to simplify things and make people believe that things aren’t what they seem. AOL losing money, for example, is an untrue assertation.
Stock price may be a lack of confidence in the company, but along with AOL, IBM stock dropped. And non-tech companies as well. It’s just a general downward trend of the market as we went into a brief recession (only two or three quarters if I remember correctly), and decling GDP growth rate even outside the recession.
Now banks and loan officials aren’t as blind as the mob. If you look at the books of AOL, you see them making a steady profit. And AOL Time Warner as a whole is a very solid company that isn’t going to fluctuate much. People are still going to watch CNN, they’re still going to subscribe to Time Magazine, they’re definately going to keep their cable, and they will continue going to movies. And, of course, AOL still has 35 million customers. I don’t think they’ll be any trouble refinancing loans, and one of AOL-TWs priorities right now is reducing the debt load. Oh, and about that 26 billion you mentioned… I believe that it came from the Time Warner side of things. AOL was actually very healthy and still in rapid expansion mode at the time of the merger. It didn’t have much of a debt at all, and certainly nowhere near 26 billion.
I don’t think that AOL Time Warner is in any trouble at all. I just wish things had gone as promised, so they could have started challenging the Microsoft behemoth successfully.
-Psi Cop
I interpret your question as asking “can they still write it off as a loss on their tax return?”
The answer is no. A lost must be “realized” for a taxpayer to deduct it on the taxpayer’s return. So, if I buy a share of stock for $10 in Year 1 and the stock is worth $8 in Year 2, I cannot claim a $2 loss on my Year 2 tax return. If I sell the stock for $8 in Year 3, however, I can claim a loss on my Year 3 return.
As has been explained by many posters, AOL/TW actually had a profit from operations, so they’ll be paying tax on those profits, much to the dismay of people like you who are looking for examples of “corporate greed” and “government pandering to corporations” under every stone.
Perhaps the only the Onion article that wasn’t a parody
The original article isn’t in the online archive but was in last year’s Dispatches from the tenth circle calendar.