Weekly Media Notes: Hulu Seeking To Sell A Stake To Time Warner, Viacom’s Earnings And Fox’s Dubai Theme Park

November 16th, 2015 by Trefis Team
TWX: Time Warner logo
TWX
Time Warner

Media stocks remained fairly active this past week, with Hulu seeking to sell a stake to Time Warner. Viacom reported its Q4 FY15 earnings, which were lower than street estimates while 21st Century Fox will develop a theme park in Dubai. We discuss below the developments related to these media companies over the last week or so.

Time Warner

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Hulu is seeking to sell a stake to Time Warner (NYSE:TWX), in a deal which will value the streaming service at $5 billion. Disney, Fox and Comcast jointly own Hulu, and selling a stake to Time Warner will reduce their stakes to 25% each. The deal will help Hulu compete better with Netflix and Amazon Prime. Time Warner will not only bring in cash but also offer more content than it has currently sold to Hulu. While Hulu could be far more valuable in the future if it continues to post subscriber growth, Time Warner has been pushing for its own in-house streaming service. We’ll be closely watching for any update on this front, as the massive demand for streaming services offers a significant opportunity. Hulu is much smaller in size compared to many of its peers, with a subscriber base of around 10 million. But with more content to offer, it could see rapid growth in the coming years. It should be noted that Hulu streams many broadcast shows from ABC, Fox and NBC within days of original airing, and if it can strike a similar agreement with Time Warner, it could provide a significant boost to the company. [1]

  • Trefis has a $95 price estimate for Time Warner’s shares, translating into a $79 billion market cap. This is 35% ahead of the market price of around $70 seen over the week.
  • We estimate the company’s 2015 revenues to be around $29 billion for earnings per share of $4.47, compared to a consensus of $4.68 according to Reuters.

Viacom

Viacom’s (NASDAQ:VIA) fiscal Q4 earnings were below street estimates amid lower domestic advertising sales and a subdued performance by its studio business. On the brighter side, international advertising saw massive uptick despite currency issues while affiliate revenues, both domestic and international, were up double-digits. [2] The company has been investing more into original programming, which we believe will bode well in the long run. However, studio operations will likely remain subdued despite increased investment, primarily due to stiff competition. (see – Viacom’s Increased Investment In Media Networks Will Likely Bode Well In The Long Run While Studio Business To Remain Subdued)

  • We currently have a $72 price estimate for Viacom’s shares, translating into a $28 billion market cap. This is roughly 40% ahead of the market price of around $51 seen over the week.
  • We estimate the company’s 2015 revenues to be a little under $14 billion for an earnings per share of $5.74, compared to a consensus of $5.88 according to Reuters. We will soon update our model to reflect the recent quarterly earnings.

21st Century Fox

21st Century Fox (NYSE:DIS) will build a theme park in Dubai, which will feature attractions based on popular movies such as Titanic, Ice Age and Planet of the Apes, among others. The company is also developing another park in Malaysia. The Dubai park could draw as many as 3 million guests in first year of its opening in 2018. This compares with 17 million visitors in Disneyland Anaheim and 7 million visitors in Universal Studios Hollywood last year. [3] Theme parks are important for media companies as they not only provide stable cash flows, but also provide a platform to cross-market their other products and services, including, television, movies, consumer goods and video games.

  • Trefis has a $39 price estimate for 21st Century Fox’s shares, translating into a $80 billion market cap. This is roughly 30% ahead of the market price of around $30 seen over the week.
  • We estimate the company’s 2015 revenues to be around $30 billion for earnings per share of $1.72, compared to consensus of $1.70, according to Reuters.

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Notes:
  1. Hulu in Talks to Sell Stake to Time Warner, The Wall Street Journal, Nov 12, 2015 [↩]
  2. Viacom’s SEC Filings [↩]
  3. 20th Century Fox World set to open in Dubai in 2018, Los Angles Times, Nov 3, 2015 [↩]