Key Takeaways From Time Warner’s Q4 Earnings

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TWX
Time Warner

Time Warner Inc (NASDAQ: TWX) reported strong fourth quarter earnings as both its earnings and revenue beat analysts’ estimates. In fact, the company beat earnings estimates for the fourth consecutive quarter in 2016. The company’s revenue increased 11% year-over-year (y-o-y) to $7.9 billion, which beat consensus estimates by $170 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 25% y-o-y to $1.7 billion, and it also posted adjusted earnings of $1.25 per share, which was an 18% y-o-y increase. Additionally, the company’s marketing costs increased around 20% y-o-y for the quarter, as it invested in the rebrands at TNT and TBS.

In Q4, Time Warner benefited from a record performance at CNN, as it benefited from the presidential election coverage, as well as healthy demand for premium sports properties. Meanwhile, HBO contributed to double-digit profit growth in the fourth quarter, due to investments in high-quality programming and an increase in domestic subscription revenue. However, the total domestic subscription revenue across HBO and Cinemax was essentially flat for the year. In addition, Warner Bros. benefited from the success of films such as Fantastic Beasts and Where To Find Them, which grossed close to $809 million at the global box office in the fourth quarter, against a production budget of $180 million.

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Growth In Turner Networks

Turner Networks consists of cable networks and digital media properties that offer entertainment, sports, kids and news programming on television and digital platforms, which includes networks like TNT, TBS, Adult Swim, Turner Sports, Cartoon Network, and CNN. In the fourth quarter, Turner segment’s revenue grew 7% y-o-y to $2.8 billion, primarily due to the domestic affiliate renewals. The network’s subscription revenues increased 14% y-o-y in fourth quarter, of which domestic subscription grew by 15% y-o-y. However, the segment’s overall advertising revenue was down 2% y-o-y in the quarter due to slowdowns in some international markets.

CNN saw solid ratings growth in November, as it was rated No. 5 among basic cable networks in prime-time and total-day total viewers. CNN’s Election Night coverage was the most watched prime-time night in its history. CNN viewership increased 128% y-o-y during the election week. ((Donald Trump Election Brings November Ratings Boon, Deadline, November 2016)) Overall, CNN enjoyed 77% y-o-y growth in its total viewers in 2016, fueled by the election. In addition, CNN saw a massive 90% y-o-y increase in the 18-49 age group, logging 373,000 prime-time viewers for the entire year. ((Cable TV Rankings 2016: Presidential Politics Fuels Ratings Gains, Deadline, Dec 20 2016))

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 17% y-o-y , while adjusted operating income grew by 57% y-o-y. The studio collected $409 million at the U.S. box office during the December quarter, primarily led by the success of Fantastic Beasts and Where To Find Them. 

Future Outlook

Reuters’ compiled analyst estimates forecast revenues of $7.75 billion and earnings of $1.52 per share for Q1 2017, implying growth of about 9% and 43%, respectively. The company expects its total advertising revenue to be flat to up low single digits in the first quarter.

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In 2017, the company anticipates solid double digit domestic subscription revenue growth at the Turner networks, driven by continued benefits from affiliate renewals. However, the company’s programming costs could grow in double digits, due to approximately $400 million of incremental costs of new MBA contract in the first half of 2017. At HBO, Time Warner expects subscription revenue growth to be in high single digits, as the company plans to complete its additional affiliate deals and expand its digital distribution. At Warner Bros., the company expects growth led by its theatrical and videogame businesses, along with two more DC films as well as The LEGO Batman Movie. This improvement in subscription revenue growth at HBO and a strong movie lineup could boost the company’s adjusted operating income in 2017.

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

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