The problems at AOL Time Warner's online division have sent the floundering media giant's stock plunging to near four-year lows and analysts do not expect the woes to end soon.
The world's largest media company reported its first net profit since Internet pioneer AOL took over media company Time Warner in 2001, but Wall Street was focused on the US Securities and Exchange Commission's inquiry into the accounting practices at the online unit.
Shares of AOL Time Warner slid $2.60, or nearly 23 per cent, to $8.80, dropping below the key $10 level last night in New York. It was the most actively traded stock on the New York Stock Exchange.
Several analysts cut their ratings on the company, which last week completed a management shake-up that gave control to Time Warner veterans and which is contending with investor backlash after a 70-percent slide in its stock this year.
Analysts cited the SEC's fact-finding inquiry into America Online's accounting as weighing on values. The inquiry comes after the Washington Postreported AOL may have inflated revenue in 2000 and 2001.
Several analysts said the inquiry was unlikely to spread to the company's other divisions but said it would still weigh on the stock given the current market jitters.
"Despite a depressed valuation, we do not believe the Time Warner businesses will be strong enough to overcome AOL division issues," said Goldman Sach's Mr Richard Greenfield, who has a market perform rating on the stock.
The company's stock also now has to deal with the stigma of trading in the single digits. The drop below $10 holds significance as many large institutional buyers will not buy stocks in the single digits, according to money managers.
A Merrill Lynch report earlier this year found that only 3 per cent of technology stocks that fall below $10 had rebounded to $15 or more within the next year.