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.

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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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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