An analysis of the Google-AOl deal:



First, the news:



Time Warner is selling a 5 percent stake in America Online to Google for $1 billion in a proposed five-year deal.



Now, let’s see what all this noise is all about:



It is more than just an adverstising deal.



1. On the Valuation:

The combined value of Time Warner and AOL on their merger during the heady days of the bubble was approximately $163 billion. This means the present value of AOL is $20 billion - many analysts will contest this ‘on-the-high-side’ valuation.



Related data: Today, Time Warner’s market cap is approximately $84 billion, while Google’s is roughly $127 billion.



2. AOL’s Contribution To Google’s Revenues:

Analysts’ estimates put this year’s Google’s revenues from ads on AOL around $500 million, Of that, Google will pay AOL about $430 million. Google’s annual revenue will hit $6 billion by the end of 2005. So, despite all the deal claims, AOL contributes only around 8% of Google’s revenues. So what’s all that shout about?



3. It’s about Google’s content plans:

Microsoft, be very afraid, be very,very afraid. You have lost more than just a chance to go one up on Google in the Online Advertising Market. Now Google gets a chance to reply to all its critics who say that the company is making money off other people’s content.



4. Next up:

Google buys The New York Times (2004 revenues of $3.3 billion)



5. Now I am sure someone at Google is reading this blog.



Via: The New York Times