HBO recently released its HBO Go app for mobile devices and reportedly had 1 million downloads in the first week of its launch.  The app works both for Apple’s (NASDAQ:AAPL) devices as well as Android-based gadgets. This is yet another move by Time Warner (NYSE:TWX) aimed at preserving HBO’s value. Below we take a quick look at HBO’s value and how the app launch could affect the company’s outlook. Time Warner competes with other media companies like Disney (NYSE:DIS), News Corp (NASDAQ:NWS), CBS (NYSE:CBS) and Viacom (NYSE:VIA).
HBO Represents One-Fifth of Time Warner’s Value
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We estimate that HBO constitutes about 20% of Time Warner’s stock value. This comes as a result of high fee per subscriber of a little over $7 per subscriber per month and high gross profit margins of over 53%. This more then offsets HBO’s lower household penetration compared to many other channels.
The premium nature of HBO makes it more susceptible to subscription drops if alternative services like that provided by Netflix (NASDAQ:NFLX) appeal to more subscribers, who might no longer find it worthwhile to continue paying for HBO. However, HBO prides itself in its relatively new movie content, while Netflix still does not offer much on its streaming service. But these factors could shift in the future. While on one hand Time Warner might look to make licensing deals with Netflix, it will certainly seek to defend its more profitable channels like HBO. And HBO Go is a step in that direction.
The service was first launched on the web but has since expanded to mobile devices, a good move since distribution matters as much as content. This increases customer convenience and encourages them to maintain their HBO subscriptions.
Our price estimate for Time Warner stands at $35.51, roughly in line with market price.Notes: