AOL Drops Google For Microsoft -- But Worse Was Priced-In (GOOG, MSFT, TWX)

An article (paid sub req'd) in this morning's Wall Street Journal confirms that Time Warner has decided to partner with Microsoft in online advertising. Key points:

1. AOL will drop Google as its primary provider for search and use MSN instead.
2. AOL and MSN advertising-related assets will be combined in a JV with little or no money changing hands.
3. A joint ad sales force will be created to sell ads on MSN and AOL.
4. An automated platform will be created to serve ads to both sites (presumably for search, as AOL acquired Advertising.com to handle non-search-related ads).
5. Microsoft will not acquire an equity stake in AOL.
6. Deal to be announced in the third week of December.

Quick comment on the stocks: What's priced-in? There's already been exhaustive discussion of Google losing AOL's search business, including attemps to quantity Google's exposure. So arguably that news is already priced-in to GOOG. In fact, recent sentiment seems to be that Microsoft would buy a sizable chunk of AOL, which would have been a more severe and irreversable development for Google. Moreover, there's always a chance that the AOL-MSN collaboration just won't work well. The stakes to AOL in terms of search revenue are high (particularly with pressure on Time Warner to demonstrate that it can grow AOL's profits), so any significant decline in AOL's revenue would open the possibility of a return to Google. Bottom line: worse news than this was already priced-in to GOOG; and this doesn't look great for MSFT and TWX.

Click on Time Warner chart above to enlarge.

Related:

• All Internet Stock Blog articles on Microsoft, Time Warner and Google.
• The complete list of Internet stocks (and links to articles about them) covered by The Internet Stock Blog.
• A list of full conference call transcripts available on the Seeking Alpha Network.

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Comments

[aripap:]

Actually, DoubleClick powers all of AOL's non-search ads. Ad.com is for performance-based advertising.

2005 Dec 06 07:54 PM

[User 1:]

Thanks aripap - that's a very helpful comment!

2005 Dec 07 03:18 AM