Time Warner’s CNN Sees Solid Ratings Growth In Q1

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Time Warner’s (NYSE:TWX) CNN news network saw solid ratings growth with a 22% jump in total day and a 20% jump in the key 25-54 demographics during the first quarter. It maintained its second spot after Fox News while MSNBC continued to look weak and was down 30% in total day delivery. [1] CNN generates revenues from both advertising slots sold to advertisers as well as subscription fees collected from pay-TV service providers. While higher ratings translate into better advertising revenues for the cable networks, CNN’s strength in the recent past is likely to aid its subscription growth in the near term.

The network has a high penetration of over 90% of the U.S. pay-TV households market and it charges an estimated $0.60 monthly subscriber fees from the pay-TV operators, translating into subscription revenues of a little under $700 million. The network has a strong appeal to many viewers, and it has historically been associated with unbiased, prompt reporting and for adopting a centrist view. Even though the network is ranked below Fox News, viewers turn to CNN for an in-depth coverage of an event. Given these trends and continued growth in pricing, will drive the network’s revenues in the coming years.

Looking at advertising, higher ratings will translate into higher ad pricing and boost the revenues for the network. However, the recent rise in CNN ratings can also be attributed to the decline at MSNBC, which is struggling with its programming and it hit a nine-year low in 2014 in total day ratings. It will be interesting to see how the ratings trend in medium term when MSNBC sees some stability in viewership. Meanwhile, Fox News will continue to dominate the cable news in the near term as well as in the long run (see – Ratings Growth And Cable News Dominance Will Boost Fox News’ Subscription Revenues). We currently estimate CNN’s advertising revenues to grow around 4% in 2015 to $530 million and subscription revenues to grow 5% to $725 million. An estimated EBITDA margin of 36% for Time Warner’s cable networks will translate into EBITDA of $450 million, representing 6% of the company wide EBITDA.

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We estimate revenues of about $29 billion for Time Warner in 2015 with EPS of $4.58, which is slightly lower than the market consensus of $4.67, compiled by Thomson Reuters. We currently have an $95 price estimate for Time Warner, which is more than 10% ahead of the current market price of $84 per share.

See our complete analysis for Time Warner

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Notes:
  1. CNN Sees Big Jump In Q1 Ratings, But Fox News Still Tops All, The Huffington Post, Apr 2, 2015 []