Google sees erosion of its $1B AOL investment

Google has admitted to the SEC that its 2006 investment in AOL could be "impaired," meaning that its 5 percent stake in AOL might now be worth considerably less than the $1 billion the company paid in 2006.

For Google, this assessment might bring a substantial charge against future profits, although the highly profitable company -- which earned $2.55 billion during the first half of 2008 alone -- seems likely to be able to absorb the loss rather handily.

According to analysts, AOL is now worth only about $10 billion, or roughly half of its $20 billion valuation two years ago, just after Google had made its investment. Google bought the 5 percent stake mainly to keep AOL, one of its biggest advertising partners, from teaming up with Microsoft.

Google now has the legal right to demand that Time Warner either buy back its stake or spin off AOL through an IPO. So far, though, Google has given no indication of plans to pursue either of those courses of action.

Meanwhile, Time Warner has been giving off signs that it is readying AOL for a possible sale. Time Warner CEO Jeff Bewkes confirmed earlier this week that his company will split its Internet division into two companies, a dial-up unit and an advertising firm. He did stop short of saying that Time Warner will spin off or sell either of them.

Earthlink, though, has already voiced interest in acquiring AOL's dial-up arm. At the same time, Time Warner is rumored to talking with both Yahoo and Microsoft about a possible divestiture of its advertising business.