Key Takeaways From Time Warner’s Q3 2016 Earnings

Time Warner Inc (NASDAQ: TWX) reported strong third quarter earnings as both its earnings and revenue beat analysts’ estimates for the third consecutive quarter this year. The company’s revenue increased 9% year-over-year (y-o-y) to $7.2 billion, which beat consensus estimates by $190 million. This increase was primarily driven by growth in all divisions, particularly the company’s cable TV and film business. Time Warner’s adjusted operating income increased 12% y-o-y to $2.1 billion, and it posted earnings of $1.83 per share, which was a 46% y-o-y increase.

We believe that, in the near term, Time Warner’s results will primarily be driven by two factors — HBO and Warner Bros.’ movies and TV licensing. However, unfavorable currency effects could be a drag on its earnings. The company’s stock, on the other hand, will be largely driven by whether or not its acquisition by AT&T is approved.  HBO’s original content could continue to aid its subscription growth in the coming years while the HBO Now streaming service widen its subscriber reach. Warner Bros.’ movies and TV licensing should also boost Time Warner’s overall growth.

CNN Ratings Boosted Q3 Results

The Turner networks include TNT, TBS, Adult Swim, truTV, Turner Classic Movies, Turner Sports, Cartoon Network, Boomerang, CNN and HLN. In third quarter, the segment’s subscription revenue grew by 12% y-o-y, as higher rates in the U.S. and international growth offset a decline in U.S. subscribers and foreign-exchange impacts. CNN saw solid ratings growth in the third quarter, with a 56% jump in the primetime 25-54 demo, and a 66% increase in the total day demo. If we look at total viewers, CNN was up 48% in primetime compared to the prior year quarter. ^[1] This has been largely driven by election coverage.

Turner’s overall revenue increased 9% y-o-y to $2.6 billion, driven by a blockbuster election season at CNN. Turner’s adjusted operating income was up 12% y-o-y in the quarter, despite higher programming costs mainly reflecting CNN’s election coverage.

Solid Performance by Warner Bros. Film Business

Time Warner’s studio operations are widely diversified with TV production, movies, electronic sales, video games and licensing. Warner Bros’ revenue increased by 7% y-o-y , while adjusted operating income grew by 12% y-o-y. In the box office, the company’s theatrical revenues grew by a robust 45% y-o-y, as it benefited from the performance of movies such as Suicide Squad, which grossed close to $750 million at the global box office. Other profitable movies of the quarter included Sully and Lights Out.

Future Outlook

Reuters’ compiled analyst estimates forecast revenues of $7.80 billion and earnings of $1.29 per share for Q4 2016, implying growth of about 10% and 22%, respectively. For full year 2016, the company extended its forecast for earnings per diluted share to range between $5.73 to $5.83 from $5.35 to $5.45.

Have more questions on Time Warner? Please refer to our complete analysis for Time Warner

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1. Q3: CNN Has Best Quarters In Eight Years, cnn.com, Sep 2016 [↩]