Bear Thesis for Time Warner Inc (TWX)

5. Movie business has smaller margins

In 2012, the Film business unit saw declining revenues of roughly 5% on a year-over-year basis to end at $12B. The company’s revenues were negatively impacted by lower theatrical releases, but were largely offset by signing content deals with ‘over-the-top’ video streaming companies.

The movie business of Time Warner represents roughly 41% of total sales, but the operating income from this business division has a margin of roughly 10.2%. This operating margin of Film segment is substantially lower compared to the TV Networks business of Time Warner which has an operating margin of 33.2%. And a few box office flops from Warner Bros. can send the operating margin downwards even more, as the company has to fund costs beforehand.

In spite of these negative aspects of Time Warner Inc (NYSE:TWX)’s business, there are notable positives as well. The company increased its dividend payout by more than 11%, which marks the 4th consecutive year of double-digit dividend increases. In addition, the company’s board also authorized the right to repurchase an additional $4 billion worth of stock. Both of these moves by the management might drive the stock forward.

The article The Bear Thesis for Time Warner originally appeared on Fool.com.

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