Key Takeaways From Time Warner’s Q4 Earnings
Time Warner Inc (NASDAQ: TWX) reported better-than-expected fourth quarter results and ended the year on a high note. The company had a fairly strong 2017, as both its earnings and revenues came in ahead of market expectations. Here we highlight some of the most notable items from the earnings release. In Q4, the company’s revenue increased 9% year-over-year (y-o-y) to $8.6 billion, which beat consensus estimates by $180 million. This increase was primarily driven by growth across divisions, particularly HBO, as well as the cable TV and film businesses. In addition, Time Warner’s adjusted operating income grew 9% y-o-y to $1.9 billion, and it also posted adjusted earnings of $2.66 per share, compared to $1.25 in the prior-year quarter. This increase included a tax provision benefit of $1.06 from end-of-year tax reform. We have created an Interactive Dashboard which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.
Growth At Turner
In the fourth quarter, Turner segment revenue grew 10% y-o-y to $3.1 billion, primarily due to growth in subscription, content and advertising revenues. The segment’s operating income grew 22% y-o-y in the quarter, due to significantly higher revenues, partially offset by higher expenses. Turner’s subscription revenue increased 14% y-o-y in the fourth quarter, driven by higher domestic subscription revenues. In addition, CNN saw solid ratings growth for the full year 2017, as it witnessed its most-watched year ever among both adults 25-54 and total viewers. For the full-year, the network grew 29% y-0-y among the 25-54 demographic and 23% y-o-y in total viewers.
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HBO Grows On Higher Domestic and International Subscriptions
HBO saw strong 13% y-o-y growth in its revenues in the fourth quarter, driven by increased subscription and content revenues. The growth in subscription revenues was due to higher domestic revenues, reflecting higher contractual rates and increased subscribers, as well as higher international revenues, primarily reflecting growth in Europe. The segment’s operating income was also up 13% in the quarter, due to higher revenues and lower restructuring and severance costs.
Relatively Strong Studio Performance In Q4
Time Warner’s studio operations are widely diversified, with TV production, movies, electronic sales, video games and licensing. Warner Bros’ revenue increased 5% y-o-y, due to higher theatrical revenues, partially offset by declining television product revenues from television licensing. However, the segment’s operating income declined 11% y-o-y. The film studio collected $436 million at the U.S. box office during the December quarter, primarily led by the success of Justice League, which grossed nearly $220 million at the domestic box office.
Our $105 price estimate for Time Warner is around 10% ahead of the current market price.
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