Time Warner Looking Great in the Long Run

As one of Netflix's strongest competitors and with other growing lines of business (including a winning film studio), Time Warner may be one of media's best bets.

Feb 11, 2014 at 4:15PM

Is Time Warner (NYSE:TWX) holding its own in this era of media industry upheaval? The film, TV, and publishing giant is finding strength in its films and, though not as analyst-friendly as Netflix (NASDAQ:NFLX), its HBO property is nonetheless growing attractively. Today, Time Warner is perhaps the most formidable competitor to Netflix, and the company as a whole should only improve as its upcoming publishing spinoff (hopefully) unlocks shareholder value. Still, the film business can swing quickly, and the company's TV networks aren't showing as much promise, leaving an extra burden on Time Warner's strong assets.

Looking good
Film ended up being a winner for Time Warner, as the company's Warner Brothers studios delivered a few big hits in the final quarter of 2013. Critically acclaimed Gravity was a smash at the box office, with its IMAX version having now passed $100 million in revenue. Warner's second installment of The Hobbit franchise was also a big winner in both the critics' reports and the box office. Out of Hollywood's record near-$11 billion in 2013, The Hobbit: The Desolation of Smaug generated more than $500 million and is predicted to hit the billion-dollar mark before it's over.

HBO isn't performing like Netflix (nothing is) but remains an impressive asset regardless. Revenue for the premium-cable business grew just 4% to $4.9 billion. Netflix saw 21% sales growth throughout 2013, though the number is still smaller at $4.37 billion. HBO also saw its biggest year-over-year subscriber growth in 17 years -- gaining 2 million customers. High operating costs and contract negotiations kept the subscriber gain from translating into chunky profit growth. Costs may keep pressure on its margins, but HBO is a shining star in Time Warner's portfolio of assets. The development team consistently puts out top-tier content and, coupled with a good stack of first-run movies, creates great customer loyalty for the long run.

Signing off
Finally, the company announced a few more details on the upcoming spinoff of Time -- the publishing unit that includes Time, Sports Illustrated, and People magazines, among others. Time, like the majority of the publishing industry, has faced declining subscribers and ad revenue. The spinoff will include $1.3 billion in debt on its balance sheet. While there is no word yet on how much cash Time Inc. will receive, investors in the parent company should feel good about unloading the business.

Ad revenue at Time Warner's cable networks was essentially flat for the quarter. The company sees ratings dragging a bit but ad revenue picking up in the single digits for the current year.

All in all, Time Warner earned an adjusted $1.17 per share on $8.56 billion in revenue. Both numbers beat expectations. In the coming year, the company expects double-digit adjusted-EPS growth, separated from Time Inc.'s spinoff. At 13.4 times forward earnings, Time Warner is attractively valued. HBO is trading at a fraction of Netflix's 58 times earnings. While it won't see the same top-line growth that Netflix should put out, it's not far behind and is much more profitable. Warner Brothers' latest smash, The Lego Movie, will also help Time Warner's current quarter stay rosy. As Time Inc. goes into the rearview in the second quarter of this year, this media conglomerate is shaping up to be a compelling pick.

More compelling stock picks from a master stock picker
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers