Google Does Web Another Favor

The $1 billion price GoogleGOOG is reportedly about to pay for 5% of America Online strikes some as rich, but richer still could be the benefits that accrue to several Google peers if the deal goes through.

Come Wednesday, the Time Warner board is expected to ratify the sale, which implies an overall value for the online service of $20 billion. The deal has elicited customary protestation from Carl Icahn, who is waging a loud proxy battle with the media company's leadership. Icahn published an open letter to Time Warner warning management about the possible implications of their actions on Monday.

The rest of Wall Street seems less troubled by the transaction.

Goldman Sachs analyst Anthony Noto said in a research note Monday that the potential deal is a net positive for Time Warner, GoogleGOOG and even Yahoo!YHOO.

Noto says that while the implied value of Google's 5% stake is at the high end of Goldman's estimate, "a deal may provide AOL with some of the [traffic, tech, search and global] elements that a partner must provide to stop AOL's leaky bucket issue and unlock its option value."

Google and Yahoo! benefit, Goldman says, because the deal will prevent MicrosoftMSFT from doubling its scale in search. (Microsoft had been negotiating for the same stake.) Goldman does and seeks to do business with Google, Yahoo! and Time Warner.

A $20 billion price tag for AOL should be taken with a grain of salt because Google has a strong motive to pursue the stake, other analysts note. Google is willing to pay it "because they don't want to lose the business with AOL to Microsoft," says one.

"I don't think the Street is buying a $20 billion valuation on AOL at this point," the analyst says. "Investors want proof that the service is growing ad revenue by more than mid- to high-single digits."