September 27, 2007 | Thursday

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AOL’s re-invention headed for IPO?

By Jackie Danicki - Blogger in Marketing |News |Search Engines |Google |Yahoo

While some industry observers are doing the maths to calculate if - and how - Google could buy Yahoo, others are reporting that AOL is planning to spin off its advertising businesses through an IPO. So how about those numbers?

Business journalist Erick Schonfeld:

Based on the past year’s deals in the online advertising space (Google/Doubleclick, Yahoo/Right Media, Yahoo/BlueLithium, Microsoft/aQuantive), Time Warner could expect to get a valuation of 18 to 20 times EBITDA for Platform A. I am not going to try to back into an EBITDA number for AOL’s advertising businesses, which it does not disclose. But another way to look at it is that Google paid 10 times revenues for DoubleClick. You could argue they overpaid because they are Google. But that would give Platform A alone a top-end valuation of $20 billion, which is what all of AOL was valued at when Google took its 5 percent stake.

I’ve blogged recently about the changes afoot at AOL, which include the grouping of all its ad businesses together under the code name Platform A. It is Platform A which would go out for IPO early next year if these reports are correct. So the focus of AOL will switch to selling ads on other websites, not on its own.

This goes back to what I said just over one month ago: AOL’s struggles are far from the “hiccups” that CEO Randy Falco characterises them as. This is a company shifting its fundamental purpose and business model. Things are just starting to get interesting with this story. It will get even more interesting if the market for display ads suffers a catastrophic downturn, which - with the growth in search - is not exactly a remote possibility.