Wall Street is scratching its head over what to do with AOL. Despite chief executive Tim Armstrong's promise to turn the company around, a mixed second quarter earnings report sent the company's stock price on a downward spiral, and analysts are starting to think that the company's last hope might be to open itself up to an acquisition. Some think AOL would be a good candidate for a private equity takeover; others have suggested that Time Warner might want to buy the company back. Inevitably, the case to sell AOL is a strong one. It would be a great bargain.

Based on the market's reaction recently, AOL is letting down their investors big time. Largely due to that crappy earnings report, the company's stock price is almost half the price it was a month ago, and analysts seem very doubtful that Armstrong will be able to recover that value. News of a $250 million stock buy back program recovered some of the lost value, but it also caused AOL to spend over half of the total cash they had on hand. In fact, the company's lost well over half of its total value since Tim Armstrong took over at the end of 2009. "With its market capitalization reduced to $1.3 billion from a peak of $3.1 billion last year, New York-based AOL is now the cheapest relative to its net assets of any U.S. Web company with a value of more than $500 million," reports Bloomberg who estimates a $1.5 billion price tag on an acquisition. It wouldn't take long to start making that money back either:

The access business will generate a total of about $1.5 billion in earnings before interest, taxes, depreciation and amortization from 2011 to 2013, even as customers continue to abandon the older dial-up technology, estimates Sinha. That means the access business' cash flow alone may be enough to pay off an acquisition within three years, Sinha said.

"Everything after that is pure profit," Sinha said.

Tim Armstrong has a bigger vision for the company. With this year's $315 million purchase of the Huffington Post, the Google veteran hopes to turn AOL from a dying subscription-based service into a premium content company, but he says it will take until 2013 to start seeing results. The Huffington Post has added 300 journalists to their staff, but they've also lost some of their star hires recently. The other big source of original content is Patch, a project Armstrong guards closely, Arianna Huffington brags about and the company loses tons of money on every year. The New York Times points out, "Eliminating the money-losing service would free $160 million and lift AOL into profitability." In total the company is currently juggling 800 websites, but according to Emily Steel at The Wall Street Journal, they're simply not "earning enough money selling ads on those sites to cover its costs for a profitable business." And again, investors are over it.

"Frankly, AOL hasn't delivered on its promise yet," investment analyst Sameet Sinha told The Times. "It's just been a series of stumbles."

What can they do besides a private equity fire sale? Nicholas Jackson at The Atlantic has an idea: Time Warner should just buy them back. "Purchasing AOL would hardly dent Time Warner, where net income from 2010 is twice AOL's current market cap, writes Jackson. "With their differences settled and out of the way, reuniting these two one-time sisters could produce an unstoppable content company."