After all the bar-lowering that executives and analysts have done for AOL Time Warner (AOL) over the past few months, you'd assume the company would be cruising about now.

Indeed, there's some hope in the market that all of the last few months' setbacks -- earnings shortfalls, massive goodwill writedowns, executive departures -- will mean all the bad news on the stock is priced in, as they say, setting AOL Time Warner up for a rebound. The company is due to report fourth-quarter earnings Wednesday morning.

(Don't miss Scott Reamer's real-time reaction before and during the AOL Time Warner earnings conference call at 9 a.m. EST Wednesday -- only on

. Just go to

the Trading Track space to check it out!)

But even during the relative quiet of the last few weeks, the stock has dropped another 15%, suggesting that traders have no shortage of worries about the company. The biggest concerns now are that AOL can't recover without a rebound in the sickly advertising market, and that there's more bad news to come on the growth front. AOL fell $1.06 Tuesday to $26.84, putting it at a 52-week low.

Image Is Everything

Much of AOL's problem in the market is one of image. As former SG Cowen analyst (and current


contributor) Scott Reamer pointed out in a note following the Jan. 7 warning, "This stock has become a call option on the health of the advertising industry and will only move significantly higher once the advertising business starts to improve."

Alas, there's no report of that from any precinct, as AOL itself well knows. As a matter of fact, the company has predicted it will post stronger 2002 numbers regardless of whether the ad market perks up at all.

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Perhaps a bigger worry at AOL, and across the market, as Tuesday's action showed, is where the growth is going to come from in the future, and at what cost. Recall that the market was spooked earlier this month by the magnitude and the vagueness of AOL's planned writedown of goodwill and other intangible assets. That hit, scheduled for the first quarter of 2002, will amount to $40 billion to $60 billion, AOL said -- the largest loss of its kind in corporate history.

For its part, AOL prefers to focus on how it will restart its growth machine this year. Assuming already-announced restatements of pro forma numbers, AOL expects first-quarter 2002 revenue and earnings before interest, taxes, depreciation and amortization -- a common media industry cash-flow yardstick -- to be "essentially flat" with year-ago levels. For the full year, the company expects revenue growth of 5% to 8% and EBITDA growth of 8% to 12%. Skeptics might recall that the forecast EBITDA growth rate is less than half of AOL's earlier prediction for 2002 (and 2003 as well).

Past Is Prologue

Looking forward's not a bad direction for AOL, considering all that's happened in recent months. Investors late last year were jarred by the news that the company wouldn't meet its oft-repeated, breezily self-confident forecast of $11 billion in EBITDA for 2001. A bit later, Jerry Levin rocked the boat again, announcing his surprising decision to step down and leave the reins to Dick Parsons.

Looking back's probably not going to be all that enjoyable in earnings-statement terms either. Excluding nasty charges such as $50 million in merger-related costs and noncash charges of $1.5 billion to $1.8 billion to cover the decline in value of the company's investment portfolio, AOL Time Warner says that it expects fourth-quarter EBITDA will jump 14% in the fourth quarter to over $2.7 billion. Revenue should rise 3% to $10.5 billion.

Of course, not all the news has been bad. The first installment of the

Lord of the Rings

trilogy performed better at the box office than nearly anyone expected, presaging promising video revenues for the title and a willing audience for the next entry in the series.

And in a move that indicates the America Online service's pricing power, the company raised from $10 to $15 per month the fee it charges members of the service who get access to the Internet via other ISPs. Though the rate increase was noted as early as Jan. 3 by SoundView Technology analyst Jordan Rohan, the move wasn't widely reported until last week.

About the only sour note struck the past month, in fact, was the recent report in AOL Time Warner-owned


speculating that Levin didn't, as generally accepted, depart the company of his own volition, but rather was pushed out. If true, such a scenario raises the unpleasant prospect of a distracting power struggle between such people as CEO-designate Richard Parsons and sole COO-designate Bob Pittman. But as plausible as the Levin story might be, it hasn't led to any more earthshaking revelations.

Wednesday may be another story, however.