Time Warner is a rather complex, diversified media company. Keeping in mind that AOL is a division of Time Warner, which could be spun off into an independent business in the future, we will discuss the acquisition targets under two broad categories – 1) acquisition targets for Time Warner (including Time Inc.) and 2) acquisition targets for AOL.
Acquisition targets for Time Warner (including Time Inc.)
We have further sub-categorized the acquisition targets under Media and entertainment keeping in mind that the Company could spin off Time Inc. its publishing division.
Business and Finance
The Company operates CNNMoney.com the #1 site for Business & Finance information but it does not have a very good coverage of the stock market like Dow Jones (Barrons.com) or Yahoo Finance. To ramp up its stock market offering the Company could look at acquiring sites like Kiplinger, SeekingAlpha, or PhatInvestor.
Seeking Alpha is looking for an exit, and can presumably be acquired for not a lot of money. It lacks a good ad sales force, and pairing it with Time Warner’s ad sales team, could turn this asset into a good bet.
There are also some structural issues around CNNMoney being a part of CNN / Turner, while the content it uses is repurposed from Time, Inc.’s various magazines (Fortune, Money Magazine, and the now defunct Business 2.0). I’ve heard rumblings in the industry that CNN gets all the credit for the “success” of CNNMoney, while Time, Inc. has to take all the blame for lack of profitability. May be, Time Warner, to compete with News Corp. under dramatically changed conditions, would do well to put all the business and finance properties in all media (print, web, TV) under one separate division. Whichever way it goes, the ambiguities need to be sorted before the strategic acquisitions can be successful.
SI.com is a leading sports site and leverages the super popular Sports Illustrated magazine brand. But it lacks the freshness and energy of a cool sports community site and Time Warner could consider acquiring sites like be Yardbarker, PicksPal, Takkle, BallHype, etc. which have very good community features.
Entertainment & Lifestyle
The Company is already a leader in the entertainment and celebrity gossip space (People Magazine) and could look at consolidating its position in this space by acquiring Sugar Publishing, a Sequoia funded company based in Silicon Valley.
The Company is also a longtime leader in the women’s fashion space, and operates InSyle.com, a site that is an extension of its famous InStyle magazine brand. I think there is an opportunity here for Time Warner to acquire more sites dedicated to women and fashion as it is a rapidly growing space. The top target here could be Glam Media, also a Silicon Valley company backed by Accel Partners.
Acquisition targets for AOL
AOL has been shifting focus from its ISP business to providing ad-supported free content and online services. The Company is expanding its geographical presence by rolling out local sites. It has already rolled out sites dedicated to India, China, Sweden, Latin America, etc. I think the Company could look at acquiring some of the top portals in each of these countries and a good example will be Rediff.com in India, which I believe is an acquisition target. Rediff.com is a leading web portal in India is traded on NASDAQ and has a market cap of $475 million.
AOL has started a number of new verticals and in some cases it has partnered with the leading players in each of these verticals. Sine the Company is focusing on developing strong verticals and sees ad revenues on these sites as a key revenue driver, it could also look at acquisitions in the rapidly growing verticals like Jobs, Travel, Personals, Real Estate, Autos, Health, etc.
In the online jobs space the Company could consider acquiring Monster, which has lost its leadership position in the US to CareerBuilder and is available at a forward P/E of 25 but then AOL needs to finance approximately $6 billion to close the deal. It could also consider acquiring vertical job search engines like Jobster or Simply Hired. Simply Hired has raised $17.7M in funding from News Corporation’s Fox Interactive Media, Foundation Capital, Garage Technology Ventures and individual investors. Jobster, Inc. is privately held and backed by Ignition Partners, Mayfield Fund, Trinity Ventures, Reed Elsevier Ventures.
In the travel category, the Company could acquire Priceline, or Orbitz. The Company could even consider trying to buy TripAdvisor from Expedia, as the latter has been mulling a spinoff of TripAdvisor. TripAdvisor will cost AOL anything between $1.0 billion to $1.5 billion. TripAdvisor currently accounts for 6.7% of Expedia’s revenues, and frankly, if I were Expedia, I would not sell this tremendously promising asset. The more plausible, smaller deal, of course, would be Kayak, its current travel search partner.
In the Real Estate space, the Company could consider acquiring Trulia, ZipRealty or Zillow. Trulia recently raised $10 million in Series C funding led by Sequoia Capital. The site has raised $17.7M in total VC funding since 2004. ZipRealty is traded on the NASDAQ and has a market cap of $160 million. Zillow has raised $57 million in funding till date. According to Hitwise data, Zillow is ranked 7th among the top 10 real estate sites in the US.
In the Health space the Company might consider acquiring Healthline, a medical search engine, which has been growing rapidly (269% growth in 1Q 2007 over 1Q 2006). It could also consider acquiring social networking sites like, DailyStrength or PatientsLikeMe. And if it gets truly ambitious, and decides to write a very large check, WebMD is also a possibility.
In summary, Time Warner’s acquisition of AOL has been pretty much a disaster. Now, if AOL is spun back out, especially with more of an ad-supported online media strategy, the company could become quite valuable as a free-standing entity, and can also make interesting acquisitions to build upon that value. Inside Time Warner, everything seems too big and too messy.