All Things Digital

Time Warner’s AOL division posted financial results today, and while its revenue did not, as some investors worried, “fall off a cliff,” it’s clearly hanging on to one for dear life.

Revenue at the AOL unit slid 23% to $1.1 billion, with much of that decline stemming from a steep 28% drop-off in dial-up subscribers. Ad-revenue growth slowed markedly, rising just 1%. Disappointing news for Time Warner (TWX), which has been mulling the possible sale of AOL. With the MicroHoo merger on the horizon, the field of suitors for the division could narrow by two very quickly.

That said, today brought with it good news for Time Warner as well. The company reported first-quarter earnings that were largely in line with analyst expectations and announced plans to spin off its cable operation. “We’ve decided that a complete structural separation of Time Warner Cable, under the right circumstances, is in the best interests of both companies’ shareholders,” Time Warner CEO Jeff Bewkes said today in a statement. “We’re working hard on an agreement with Time Warner Cable, which we expect to finalize soon.”

The economy may be slowing, the traditional wireline phone business deterioriating, but Verizon (VZ), as director Michael Bay says in one of the company’s new commercials (see below), is doing “awesome.”

The company’s first-quarter earnings met Wall Street expectations today thanks to strong growth in its wireless and FIOS home fiber-optic services businesses. With a 10% increase in first-quarter profit, and revenues that rose 5.5% to $23.83 billion, Verizon’s business would appear to be more recession-proof than others. “We’re really not seeing a change in trends,” Chief Financial Officer Doreen Toben said in an interview. “How many people are really going to drop their wireless phone?”

Not very many. Verizon added 1.5 million subscribers to its mobile business during the quarter. That said, there are plenty of folks willing to drop their landlines. Verizon wire-line subscribers declined 8.2% to 40.52 million from 44.15 million in the first quarter of 2007.

If there’s been a slowdown in U.S. consumer spending, nobody told Apple. This afternoon, the company reported second-quarter revenue of $7.5 billion on net income of $1.1 billion, or $1.16 per diluted share, pretty much blowing the doors off Wall Street expectations.

Apple (AAPL) shipped 2,289,000 Macs (up 51%), 10,644,000 iPods (up 1%) and 1,703,000 iPhones during the quarter.

“We’re delighted to report … the strongest March quarter revenue and earnings in Apple’s history,” said CEO Steve Jobs, recycling the soundbyte CFO Peter Oppenheimer used to describe the company’s 2007 March quarter.

Clearly, business is good in Cupertino. That said, Apple says it expects fiscal third-quarter earnings of $1 a share on revenue of $7.2 billion–a bit below analyst expectations. And the Street, which by now should be familiar with Apple’s under-promise-and-over-deliver earnings highjinks, isn’t at all happy with that forecast. The company’s shares slipped a bit in after-hours trading.

Turns out BoomTown was right: Microsoft (MSFT) did pooh-pooh Yahoo’s (YHOO) first quarter performance. And it did it before the company even posted earnings.

In remarks today at the launch of Microsoft’s Web portal for North Africa, MSN Maghreb, Microsoft CEO Steve Ballmer said Yahoo’s first-quarter performance has no bearing on its value to Microsoft. “We think we can accelerate our strategy by buying Yahoo and will pay what makes sense for our shareholders,” Ballmer said. “I wish Yahoo all the success with its results, but it doesn’t affect the value of Yahoo to Microsoft.”

Of course, the real question is does it affect the value of Microsoft’s $31-a-share offer for Yahoo, an offer that some observers say Redmond will be forced to raise if it ever wants to acquire the company.

Google (GOOG) has finally gotten its say about comScore’s (SCOR) “surprising” reports on its lousy paid-click performance. Published on Feb. 26, that report suggested a material weakening in Google’s paid-click advertising business. It sent investors fleeing into the woods and singlehandedly knocked 7% off Google’s share price.

ComScore subsequently backed off its claims a bit, publishing a blog post called “Why Google’s surprising paid click data are less surprising” which explained that the decline in Google’s paid clicks it charted could have been the result of the company’s click-quality initiatives and not a slowdown in its business. But on Tuesday, comScore published another report that showed growth in paid search clicks is slowing. One of its key data points: Google’s paid clicks grew by just 1.8% year-over-year.

Well, Google reported earnings yesterday and according to its metrics, paid-click growth grew by about 20%. And CEO Eric Schmidt did not let that discrepancy between those two figures go unremarked: “The business model continues to work very well,” he said. “It’s also interesting to note that paid-clicks growth is much higher than has been speculated by third parties.”

“Third parties” in this case being comScore. Now, granted comScore’s metrics included U.S. clicks alone, while Google’s included worldwide clicks, so comScore’s estimate, in all likelihood, isn’t off by 18.2%. That said, it’s still off according to Google–which, with that one little quip from Schmidt, sent comScore’s shares down more than 7%, the same decline it suffered at the research outfit’s hands back in February.

News that Yahoo’s (YHOO) board of directors failed to reach any decisions after meeting Friday to discuss the company’s response to Microsoft’s (MSFT) bid has some folks wondering if Yahoo’s directors are, you know, … understandably … er … hesitant about merging with AOL (TWX).

And it has others suggesting that Microsoft and the Internet search pioneer may announce a deal as early as this week. Predicting that Yahoo is unlikely to post stronger-than-expected first-quarter earnings next week, UBS Securities (UBS) analysts Benjamin Schachter and Heather Bellini say they wouldn’t be surprised if in the next few days the company agreed to be acquired by Microsoft. “We still think Microsoft will prevail,” Bellini said in the note. “We would not be surprised to see a deal struck sometime this week, and think it will end up being for a higher price than the original $31 per share offer.”

And who knows, it could happen. A merger of the two companies has seemed a foregone conclusion for quite a while now. As Tech Trader Daily’s Eric Savitz aptly notes, “… in the end, it’s simply obvious. Microsoft needs to buy. Yahoo needs to sell. The rest is a sideshow.” Mafioso Torch Yo, anyone?

I think that day has passed, but you never know.”

–News Corp. Chairman Rupert Murdoch comments on a possible MySpace-Yahoo alliance during last week’s earnings call.

Yeah, you never know.

You’d think that News Corp. (NWS) would be a little too busy with the integration of a certain other multibillion-dollar property to consider adding another one to its plate, but Chairman Rupert Murdoch, as we all know, is a man of healthy appetites.

So it’s not all that surprising to hear that News Corp. and Yahoo (YHOO) are discussing some kind of alliance that would allow the beleaguered Internet major to rebuff Microsoft’s hostile bid once and for all. Sources close to the companies tell The Wall Street Journal that under the terms of the deal being discussed, News Corp. (owner of this site) would take a 20% stake in Yahoo and combine it with MySpace and other News Corp.-owned online properties.

We’re not a conventional company and we don’t intend to become one, they said. See how we scorn the traditional stock offering process! See how we fearlessly test the large-scale viability of the so-called Dutch auction! Look at us! See how we refuse to give earnings guidance in the traditional sense! See how we make money without being evil! See how easily our share price passes the $200 milestone! And the $300 milestone, and the $700 milestone. See it twice! See how our newly rich employees drive up the prices of the Atherton, Calif., $25 million tear-downs! Our profit margins are among the highest in corporate America! Ha ha! See how we beat estimates quarter after quarter! See how they add us to the S&P 500! See how we refuse to sacrifice long-term opportunities to meet quarterly market expectations! See how our shares “plummet” and they’re still 20 times more valuable than Microsoft’s? And 40 times more valuable than Yahoo’s! Cower before our market cap! Bask in our arrogance! We are a golden god!

Well, we’re not so high and mighty now are we, Google? Not with financial results that come in a penny under estimates. A penny under estimates! That’s what they call a material miss, you Dutch auction dandies. Who cares if those estimates were inflated? Your fourth-quarter profit only rose 17%, compared to the 46% profit growth you posted in the third quarter. Ha! Your revenue rose a paltry 51% from a year earlier to $4.83 billion. You’ve only got $14.2 billion in cash and marketable securities on hand. $14.2 billion. A pittance. You are going down! Who cares a whit for your assurances about the state of the economy! (See how our CEO arrogantly dismisses the current growth recession as “rumors of future recessions”!)

Investors are not so easily consoled. Into the mud, Google! Your shares, which have dropped 18% already this year, are down more than $36 today! Kerplunk! $520 in after-hours trading! They’re only 29 times more valuable than Yahoo now, prigs. Ha! Oh you are going down, all right …

The Amazon bears are growling this morning.

Shares in the company, which have already lost more than 20% of their value in 2008, slipped further in early trading (but recovered later), though Amazon said yesterday that profits more than doubled in its fourth quarter. “This quarter showed accelerated sales growth and record operating profits,” CEO Jeff Bezos said in a statement released with the earnings. “In our view, these unusual financial results are driven by one thing: continuously improving the customer experience.”

But such enthusiastic pronouncements didn’t matter a whit to jittery investors worried about a slowing economy and Amazon’s tight margins. Shares of the retailer, which closed yesterday at $74.21, fell 8.2% to $68.15 before opening bell today. And they slipped even further, to $66.49, after Amazon announced plans to acquire Audible in a deal valued at about $300 million - a premium of more than 20 percent over the audiobook retailer’s Wednesday closing price.

Perhaps investors haven’t yet realized that Audible controls an astonishing 95% of the online audiobook market and, as Staci Kramer over at paidContent notes, is the top spoken-word provider for Apple’s iTunes Store. Amazon almost certainly plans to distribute Audible content wirelessly via its Kindle e-book reader, which may turn it into the iPod of e-book readers whether Apple CEO Steve Jobs likes it or not. “It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” Jobs said recently when asked about the Kindle. “Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”

That may be so, but as Jobs well knows they do listen. Which begs the question: Why didn’t Apple buy Audible? “We have long suspected that Apple would be the party most interested in acquiring Audible, considering the close ties between the two companies,” Richard Fetyko, an analyst with Merriman Curhan Ford, wrote in a research note this morning. “Audible’s audiobook content is sold within Apple’s iTunes online music store, which represents about 25% to 30% of Audible’s revenue. Also, most of Audible’s customers are iPod users. We would not be surprised to see [if] Apple made a bid for Audible to preserve its leadership in online-audio content distribution. There are no alternatives to Audible in the marketplace with any significant scale.”

You wouldn’t know it from the company’s share price today, but VMware (NYSE: VMW), maker of virtualization software, reported a 150% increase in fourth-quarter profit and an 80% jump in sales to $412 million yesterday. Sadly, investors–presumably the same ones that slapped Apple around after its “best quarter ever”–took a pessimistic view of such growth (which admittedly fell shy of forecasts) and cut the company’s share price by almost 34%.

The stomach-curdling nosedive eradicated about $10 billion in shareholder wealth and dragged VMware’s parent company EMC into the mud as well. The company, which spun off VMware last summer and remains its largest stakeholder, saw its shares slip 6%, though it just reported a strong quarter itself.

Perhaps VMware, which has been lauded as one of the best tech offerings in recent history, is overvalued after all. The company is facing increased competition from powerful rivals. “If you miss your numbers in just your second quarter after going public, that suggests the stock was overhyped,” Trip Chowdhry, an analyst at Global Equities Research, told Reuters. “The story is not as perfect as investors believe. Oracle and Microsoft and Citrix have spoiled VMware’s party.”

Perhaps. But if it’s not, the sudden decline in VMW could present a nice investment opportunity. “Here’s your buy-in discount,” says the Motley Fool. “Enjoy it while you can. It took 10 weeks for VMware’s stock to go from a 52-week low of $51.50 per share to the high-water mark at $125.25. It can happen again, so don’t get caught flat-footed.”