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High Anxiety at Time Warner

The Internet bubble is long gone, but AOL talk continues to dominate the agenda at Time Warner (TWX).

The New York media giant is due to post third-quarter earnings Wednesday morning. With investors tapping their collective foot, Time Warner's board met last Thursday to discuss America Online. A decision on AOL's strategic course isn't imminent, according to sources, but a new heading could be set within weeks.

In the meantime, the company's slow growth continues to elicit groans. Analysts polled by Thomson First Call expect Time Warner to post earnings of 18 cents a share on $10.38 billion in revenue. That points to year-over-year revenue growth of just 4.2% and compares with a year-ago profit of 15 cents a share on revenue of just under $10 billion.

"Third quarter results should mark the fifth consecutive quarter of single-digit (or worse) growth with every segment (ex networks) growing below double digits," said Goldman Sachs analyst Anthony Noto in a recent research note. Noto links Time Warner's soft numbers and the AOL decision, saying, "We continue to believe that the greatest swing factor for valuation is turning AOL into a growth business, which has limited visibility."

Surprising just about everyone, AOL has in the past two months reversed its long fade into oblivion by emerging as the most sought-after property on the Internet. The company's cash cow dial-up business has been bleeding subscribers for years, but its string of online Internet Web sites has made AOL the favored partner of big rivals. Since September, AOL has held talks with Comcast (CMCSA) and Google (GOOG), Microsoft (MSFT) and Yahoo! (YHOO), as various players admire the company's vast reach and others seek simply to play spoiler to some of their foes.

Last week, Time Warner signed AOL chief Jon Miller to a new three-year contract. Under Miller's leadership, AOL's reputation has improved with investors, gaining advertising dollars as companies shift their spending online. AOL's second-quarter advertising sales rose 45% to $320 million. The unit also has put online many of the features that were once available only to AOL members. An advertising campaign for began last month. On Monday, AOL's founder, Steve Case, left the Time Warner board , saying he wanted to avoid the appearance of any conflict of interest with his new health-care venture, the modestly named Revolution.

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