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April 08, 2008
AOL Still Dragging Down Time Warner
Time Warner (TWX) shares are down 10.8% so far this year, lagging most other large cap media stocks. News Corp (NWS) is down 6.1%, Disney (DIS) is down just 3.7%, and Viacom (VIA) is down 5.2%.
The largest single component of TWX's valuation is Time Warner Cable (TWC), whose shares are down less than 1%. This suggests that investors are placing less value today on TWX's content assets than they were to start to t the year. In fact, you could say that the content assets have been devalued by much more than 10% since TWC makes up at least one-third of the total value of TWX. This makes the comparison to NWS and DIS even more appalling for TWX shareholders.
TWX's key content assets are Cable Networks, Filmed Entertainment, and AOL. Led by good ratings and strong scatter advertising the TV nets are performing well this year. Filmed Entertainment is also having a good year on flattish box office a gain of around 20% in DVD units.
The business mixes of NWS and VIA are fairly similar to TWX's content businesses. VIA lacks a big internet business while NWS has MySpace and TWX has AOL. Speaking of AOL, if you follow the preceding analysis of TWX's other segments it seems that the incremental valuation destruction at TWX this year must be coming from investor's views of AOL. It is well known that AOL has suffered a sharp slowdown in advertising growth. This may be investors to question the long-term strategy of redeveloping AOL as an ad-based business. I've long been skeptical of this transition because I believe AOL has a very weak brand. AOL represents Web 1.0 not Web 2.0....
....Further exacerbating concerns over AOL is the stunning silence from TWX management while the Microsoft-Yahoo dance continues. Chris Atayan has forcefully argued that TWX is missing a chance to rid itself of its AOL problem. The problem has only grown larger this year as outlined above.
Carl Icahn is still messing around trying to rescue his massive loss in Motorola. Maybe he should end his truce with TWX.
Posted by Steve Birenberg at April 8, 2008 04:09 PM in TWX
THE MARKET IS GIVING SOME SIGNS OF A BOTTOMING PROCESS AND THAT WE MAY HAVE AN INTERMEDIATE RALLY.HOWEVER,OUR MEDIA STOCKS ARE STILL BEING HIT HARD.SOME MISGUIDED ANALYSTS HAVE DOWNGRADED THIS SECTOR.WHEN THE MARKET TURNS BACK UP,DO YOU THINK THE MEDIA SECTOR IN GENERAL AND OUR STOCKS IN PARTICULAR WILL AGAIN BE IN FAVOR?
Posted by: MP at April 10, 2008 10:17 AMThe market is bottoming for now and rallying because there is less fear that we are in a crisis. Investors can handle a moderate recession. It is something worse that we fear.
Advertising tends to lag GDP so the reason many analysts are cautious is because advertising may still slow down even as others sectors bottom.
I have no worries abut any of our stocks. As long the earnings numbers are there the stocks will eventually get moving again. I think CETV and MICC should be higher but I am not losing sleep over it as I expect excellent 1Q results out of both in the next month.
Posted by: Steve at April 10, 2008 11:32 AM