AOL Would Face Cold World Alone

One Wall Street analyst agreed. Case's departure "fully opens the door to selling or spinning off AOL at some point down the road," wrote Deutsche Bank Securities analyst Douglas Mitchelson in a research note. Mitchelson values the standalone online unit at around five times earnings before interest, taxes, depreciation and amortization, or about $2 a share (the parent was recently trading up 30 cents at $15.18). Deutsche Bank has a buy rating on the stock and has an investment banking relationship with AOL.

As much as Time Warner might want to dump the unit, the move is fraught with risks and would be tough to execute. For starters, the financial aspects of a spinoff remain murky -- just ask the bankers who worked on AT&T's(T Quote) sale of its broadband units.

Slide Rules

AOL faces an accounting nightmare in deciding how to allocate debt among the split parts. One possibility would be to parcel debt according to the percentages the companies came in with, a formula that would saddle Time Warner with about $18 billion and AOL with a hefty $10 billion, according to some calculations.

Moreover, it's possible that without a deep-pocketed parent, AOL would be unable to staunch its downward revenue spiral. "Spinoffs and IPOs are great for something where there's a high valuation behind it," said Soundview Technology media analyst Jordan Rohan. "Nobody's going to benefit if it's spun off before it's fixed."

AOL still would face declining membership, lack marketing muscle to attract more-lucrative broadband subscribers and lose any advertising synergies the Time Warner pairing gave it, Brumfield said.

Tough Fit

Finding potential acquirers would also be tough, said Soundview's Rohan. In theory, AOL might fit with a cable company. But the reality might be different, considering AOL Time Warner and its cable divisions have so far been unsuccessful in generating sufficient revenues from the online property. Morever, balance sheet concerns at the major cable players would likely nix the idea. Another potential candidate is Microsoft(MSFT Quote). But the largest software company in the world acquiring the largest online company in the world might not sit well with regulators.

"I don't see anyone who would want to buy it," Rohan said.

Even with a revamped executive team led by proven online retail veteran Jon Miller from USA Networks, AOL continues to operate under the assumption that its content and community alone will be able to lure non-AOL subscribers, many of whom already have broadband connections. Indeed, this philosophy underlies the company's so-called "bring your own access plan" strategy, in which someone else provides the Internet connection that AOL runs on top of.