July 21 (Bloomberg) -- Time Warner Inc.'s struggle to sell AOL is putting more pressure on the media company's stock price as an advertising slowdown spreads to the Internet and the pool of potential buyers shrinks.

Microsoft Corp., which has discussed a possible combination with AOL, said last week that sales from its Web unit missed analysts' estimates, while Google Inc. reported a slowdown in the growth of consumers clicking on Internet ads. The slump diminishes AOL's value and adds urgency to talks about a sale, said investor Anthony Valencia of TCW Group Inc.

``The longer the wait, the chance of value going down increases considerably,'' said Valencia, who is in Los Angeles and helps manage $130 billion in assets, including 23 million Time Warner shares as of March 31. AOL has ``become yesterday's story in the Internet world,'' he said.

Time Warner, the world's biggest media company, has fallen 13 percent this year in New York Stock Exchange trading on investor concern about the economy and the outlook for advertising. That adds to an almost 70 percent slide since AOL bought Time Warner for $124 billion in a 2001 takeover that sparked $100 billion in writedowns and shareholder lawsuits.

The value of AOL's ad unit, along with its declining dial- up Internet-access division, has dropped to less than $10 billion from around $15 billion two years ago and will fall further, said Richard Greenfield, an analyst at Pali Capital in New York.

`Bad Nightmare'

Time Warner lost 34 cents, or 2.3 percent, to $14.36 at 4 p.m. in composite trading. Redmond, Washington-based Microsoft dropped 22 cents to $25.64 in Nasdaq Stock Market trading. AOL executives flew to Seattle to meet with Microsoft, the Wall Street Journal reported last week.

Time Warner spokesman Keith Cocozza declined to comment before the company's earnings report on Aug. 6.

Time Warner, led by Chief Executive Officer Jeffrey Bewkes, may want $9 billion to $10 billion for the AOL ad unit alone, said Jeff Brimhall, an analyst at National City Corp. in Cleveland, which owns 3 million Time Warner shares among its $34 billion in assets. If the division sells for closer to $5 billion, the shares may fall $1, he said. Based on the July 18 closing price, that would translate to a 6.8 percent drop.

``It's a bad nightmare that everyone would like to forget,'' Brimhall said of the failed AOL-Time Warner merger. He added it is unlikely AOL will be bought by either Microsoft or Yahoo! Inc. It's more probable that a non-software company, such as an advertising agency, will acquire it to gain control of an Internet company, Brimhall said.

No Takers

His assessment differs from that of Morgan Stanley analyst Benjamin Swinburne, who said last week that the market's $10 billion valuation of AOL's ad business may be too high and isn't reflected in the share price. Getting more than $3 billion to $4 billion for the unit would bolster the shares, New York-based Swinburne said in a July 17 note.

Philippe Krakowsky, an executive vice president for strategy at ad company Interpublic Group of Cos.; Lance Maerov, a senior vice president at WPP Group Plc; and Rich Stalzer, president of IAC/InterActiveCorp.'s advertising solutions group, said they aren't interested in buying AOL's ad businesses.

`Dark Knight'

AOL's adjusted operating profit is likely to fall 12 percent this year, double the previous projection, as second- quarter ad sales probably grew 2.5 percent instead of 5.5 percent, UBS AG's Michael Morris said in a research note last week. Industrywide, Citigroup Inc. analyst Catriona Fallon also cut her estimate of 2008 online ad growth to 16 percent from 22 percent.

Morris recommends investors buy Time Warner shares because of the company's film and television studios. ``The Dark Knight,'' the Warner Bros. movie that broke records over the weekend with $155.3 million in box-office sales, highlights the strength of those assets and will help the company meet its full-year forecast for as much as 9 percent growth in operating profit, he said in a note today.

Wall Street analysts haven't discounted AOL as much as investors have marked down rivals that run similar ad networks. ValueClick Inc., based in Westlake Village, California, fell 20 percent on July 17 when it said second-quarter sales missed its forecast.

Lehman Brothers Holdings Inc. analyst Anthony DiClemente said in a report this month that AOL is now worth 7.4 times estimated 2009 earnings, down from 8.6 previously. His estimate for the division selling ads to non-AOL Web sites is twice the multiple for ValueClick, based on data compiled by Bloomberg.

Higher Value

People who buy ad companies said Wall Street is still overestimating AOL's value.

``Arithmetically, we can't support the valuation they put on it on any reasonable analysis,'' said WPP's Maerov, who is based in New York.

AOL has been building its advertising strategy by opening up its Internet portals beyond subscribers and spending almost $2 billion on acquisitions over the past two years. Advertising.com, acquired in 2004 for $435 million, helped AOL in May reach 90 percent of the more than 190 million U.S. Internet users, according to researcher ComScore Inc.

Even so, AOL never made the transition to more high-tech ways to sell ads such as search, said Gay Gaddis, president of T3 The Think Tank, an Austin, Texas, Web ad agency.

``The ad community has kind of lost faith in them,'' said Gaddis. ``People don't feel it's a tech-savvy thing anymore.''

To contact the reporters on this story: Gillian Wee in New York at gwee3@bloomberg.net; Tim Mullaney in New York at Tmullaney1@bloomberg.net

Last Updated: July 21, 2008 16:17 EDT