Media giant Time Warner Inc. (NYSE:TWX) posted quarterly earnings of $1.21 per share, or $1.17 billion, an increase from the 76 cents per share, or $773 million, it reported in the prior year quarter. After adjusting for one-time benefits and charges, the company earned $1.17 per share, surpassing the FactSet analyst average forecast by 7 cents. However, revenue slid from $8.19 billion to $8.16 billion, missing the $8.22 billion analysts had forecast.
Its subsidiary HBO also reported strong overseas subscribers, despite unfavorable currency impacts. The popularity of its shows has led to a 7% increase in revenue from distributor and subscription fees, while ad revenue grew 3%.
Despite the movie studio and magazine businesses of the company showing signs of weakness, the overall earnings growth is expected to be robust going forward. The stock has been in a major uptrend for the past nine months. I feel this uptrend will continue and investors will be rewarded handsomely in the long run.
Time Warner’s Risk / Reward Ratio to Improve
The company’s risk / reward profile is favorable for long-term investors, and going forward it’s expected to improve even further based on the following factors:
1). A solid and improving position for subscription fee growth in the next carriage cycle at Turner and over the longer term at HBO
2). Long-term visibility of the company’s networks programming expense — highlighted most recently by HBO’s renewal of film output deals with Fox and Universal
3). Management’s focus on capital return than big-ticket M&A, as befits a company with leading scale in all its business lines
Positive Catalysts for the Company
1). Popular shows such as the new “Dallas” boosted ratings at its Turner cable channels (TBS, TNT, and CNN)
2). “Girls” and “Game of Thrones” attracted more subscribers at its subsidiary HBO
3). Royalties from online streaming video services will help older shows generate additional revenue and these gains are expected to offset weakness in its movie studio and magazine businesses
Movie Studio and Magazine Segments Fared Poorly
Time Warner’s movie studio, Warner Bros., had weaker film releases last quarter, which couldn’t match the earning power of the “Harry Potter” series, which concluded in 2011. Although “Argo” and “The Hobbit” generated strong box office returns, they couldn’t measure up to the previous success of the “Harry Potter” franchise.
But there’s no reason to be overly pessimistic regarding the long-term prospects of the movie studio business, due to its fluctuating nature. With a strong cash position the studio business will certainly stage a turnaround in the coming quarters. Competitors like The Walt Disney Company (NYSE:DIS) and Viacom, Inc. (NASDAQ:VIAB) also witnessed similar trends, but this hasn’t created any serious pressure on these media stocks over the last twelve months. In fact, all of them are up significantly since January, last year.
People and Time were among the company’s titles with the biggest drops at the newsstand, based on an analysis of data released recently by the Alliance for Audited Media. Subscription sales rose 3%, helping boost total circulation 1% to 32.9 million. But this is a general trend thanks to the growing demand for digital magazines, better known as ezines. A few bright spots include a 5.1% rise in total circulation at Essence and an 8.5% jump for People StyleWatch magazine. Nearest competitor News Corp (NASDAQ:NWSA) is planning to spin-off its publishing business and the stock is up 45% over the last twelve months on the news.