AOL faces tough odds as it preps spin-off

Company to conduct pre-split analyst call this week. All eyes are on Armstrong’s secret strategy.

On December 9, Time Warner releases AOL from its grasp. The deal will result in 105.7 million shares distributed in the form of a tax-free dividend--one AOL share for eleven Time Warner shares. The following day, AOL, Inc. will trade Regular Way on the NYSE under the ticker “AOL.” The valuation could range between $3.1B and $3.5B. After the transaction, Time Warner will not hold any AOL shares, and AOL will have $100MM in cash, no debt, and its freedom.

Then, the world watches as CEO Tim Armstrong attempts to steer his newly emancipated vessel to more prosperous sees.

Ahead of the split, Armstrong and CFO Artie Minson will conduct an analyst meeting in NYC on Wednesday to review the company’s new strategy and possibly provide some financial highlights and company metrics. We'll have a rundown on the call later this week.

Armstrong will have to overcome formidable odds to correct the course of his wayward ship. The once mighty AOL is still the fourth most visited site in the U.S., behind Google, Yahoo!, and Microsoft, but as of September, it’s the only property in the Top 10 most trafficked sites to decline year over year for nine quarters straight, according to comScore stats. Facebook, the fifth most visited, is quickly gaining on the Internet giant, and will probably surpass AOL in the first half of next year.

That means AOL will have to seriously shake things up with its new content strategy to keep up with big boys. Last month, Armstrong revealed a few details about his plan, which involves creating content for the “new distribution realities” like MySpace and Facebook. The little he described sounded somewhat similar to Demand Media’s, a network that creates content based on reader demand as measured by internet searches.

Speaking at Web 2.0 conference in October, Armstrong said AOL has been working on a technology that will merge New York and Silicon Valley “in a way that hasn’t yet been done.” The company has increased the number of journalists on its payroll from 500 to 3,000 in the last few months, and is now producing 3000 pieces of content online per day. Armstrong said the new roster includes journalists from the Wall Street Journal and ESPN.