Chasing Value: Time Warner (TWX) going nowhere fast
Posted by: in Marketing and AdvertisingFiled under: Time Warner (TWX), Marketing and advertising, Time Warner Cable (TWC), Chasing Value
If you are a longtime shareholder of Time Warner Inc. (NYSE: TWX), you are very patient indeed. You can count me among you, and you can count a thousand times we’ve had carrots dangled in front of us that gave us hope we would see some nice gains in our shares.
I am pondering why I am still hanging on. My cost basis was $12.10 and we sold half our shares in the low $20’s amid the flurry of news about Carl Icahn buying back shares and breaking up the company. I sold some stock and he sold some stock, I kept some shares and he kept some shares. Mine are of little consequence except to me. His are of the utmost importance to everyone.
As long as Carl still has some hope, should we? TWX is trading around $14 these days. This is a story of a company going nowhere fast. It has been improving AOL over the past few years and the site is very good in my estimation. But that does not seem to be producing much growth.
As AOL improves, so do the competitors and to a large part the status quo continues. From my perspective, the Web business is just a spending game where the stakes keep increasing but the rewards are not always tangible. (Disclosure: AOL is the mothership for BloggingStocks.com which by many metrics has been very successful, but our success has limited impact on AOL’s overall revenue).
The cable division is larger now after completing the acquisition of Adelphia Communications, but this has not produced the intended results either. TWX is a major player in cable — for now, that’s a large so what?
Warner Brothers Studios has had some massive hits, including the Pirates of the Caribbean franchise which released its third motion picture in the series last year to great enthusiasm. The problem is that the motion picture business is hit or miss. Fewer photos are getting made, the stakes are ever increasing, and the industry has not been pegged for major growth for a decade.
The magazine business has been pegged for negative growth with the advent of the World wide web. Based on what I pay for most of my subscriptions, I think that they’re just covering the printing and shipping costs, and like so many of their enterprises, are 99% advertising dependent. They’ve sold off many titles and streamlined the business. This is true of nearly all the Time Warner divisions.
Time Warner has done a lot of clean-up. New CEO Jeff Bewkes has been a leader in this regard and continues to seek constant mission improvement from everything I can see. But that does not mean there will be strong revenue growth if the economy continues to weaken.
Look at it this way: If you are a teacher or a construction worker, no matter how hard you work and how good a job you do, you will only earn so much money. If you are an investment banker, bond trader or hedge fund manager, you can get a million dollar bonus in a year that you and the company (and shareholders) were losers. Perhaps just a smaller bonus. Bewkes and his team can play the hand they were dealt perfectly and still not win anything.
By that measure I agree with Carl Icahn that Time Warner needs to be split up by creating independent operating companies. Notice I did not state sold off, even though if I was on the inside I would certainly look at all the options.
I have thought for a long time that TWX is a conglomerate with many entities that don’t have to be united, and derive little of the promised synergies. I would prefer they change the model and spin out all of the divisions and make TWX a holding company, each division to sink or swim on it’s own.
If you own Time Warner, you own a media index fund, and it has been performing like one. It will probably be a safe place for your money, but unless it changes the model, I do not have much faith left that it will make you a lot of money in the near future.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I’m a shareholder in TWX.
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