Time Warner Cable (NYSE:TWC) recently launched its ‘enhanced iTV‘ offering for advertisers. With enhanced iTV, viewers will be able to interact with advertisements in a better way. While the product name may sound fancy, the truth is that it doesn’t really move the needle for Time Warner Cable even if the new offering is a success.
Time Warner Cable and other pay-TV companies such as DirecTV (NASDAQ:DTV), Dish Network (NASDAQ:DISH) and Comcast (NASDAQ:CMCSA) sell advertisement slots to advertisers. Below we take a look at how valuable really advertising is to Time Warner Cable and how an increment in advertising revenues can benefit it.
We estimate that advertising business constitutes about 6.5% to Time Warner Cable’s value.
To see how efficient the company is in selling advertisement slots, we take a look at ad revenue per subscriber. This figure stands at around $73 for Time Warner Cable compared to approximately $91 for DirecTV.
For the sake of argument, let’s assume that the new offering can help improve ad rate which can help Time Warner Cable reach the level of efficiency of DirecTV. Such a scenario will imply close to $1.2 billion revenues in 2012. This incremental revenue growth will only have a mild impact on the company’s stock, less than 5%.
You can gauge this by modifying the above forecast.
Our price estimate for Time Warner Cable stands at $65.67, implying a discount of little less than 20% to the market price.