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Stock of the Day
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Time Warner (TWX)
Time Warner is on the Clock
Time Warner Inc.'s decision to spin off AOL Inc. officially takes effect today. However, investors will have to wait until tomorrow before they can buy shares of AOL on the New York Stock Exchange. Time Warner believes that separating itself from the recently floundering AOL business will improve its stock performance. Time Warner is in the process of re-evaluating all its business segments and shifting focus away from the underachievers. Now that the AOL money pit has been relocated, it appears Time Warner's next move is to take a closer look at its other struggling business unit, Time Inc. Is Time Warner considering putting Time Inc. through the spin cycle too?
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| Daily Chart |
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| Stock Analysis |
Time Inc. is best known for magazine publications like Time Magazine and Sports Illustrated. However, the print media industry, particularly newspapers and magazines, has struggled tremendously to evolve with the rise of the digital era. As a result, Time Inc.'s profit and sales performance has declined in accordance with the rise in consumer popularity for digital and online content. Time Inc. has had a difficult time satisfying the digital market. The magazine publisher has also been plagued by plummeting ad sales and earnings. Although Time Warner Chairman Jeff Bewkes would argue that magazine ad sales are cyclical, Time Warner is most likely mulling over whether or not to abandon ship with Time Inc.
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Time Inc.'s future is uncertain, but if it were up to Jeff Bewkes the choice is simple: Time Inc. stays. Jeff believes that the magazine industry is not dead, but merely needs a fresh approach. Specifically, Time Inc. needs to implement a new pay model that accommodates both digital and print demand. If done correctly, a new pay model could offset the publisher's recent ad sales slump. The task of making the new pay model a reality will not be easy, but it would create significant long term value for Time Inc. The recent AOL spinoff has certainly bought some time for the magazine publisher to make improvements, but it needs to convince Time Warner that there is still profit potential in the magazine industry.
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The spinoff also gives Time Warner the opportunity to evaluate Time Inc. in its entirety, which will help it avoid any hasty decisions. Time Inc. will have the chance to get things back on track before its fate is determined. Once upon a time, the magazine publisher was a solid business unit, but Time Inc. has struggled with the rise in popularity of digital media. Although the AOL decision has taken the some pressure off Time Inc, Time Warner will eventually have to make a choice. A spinoff of Time Inc. may produce an immediate improvement for Time Warner's bottom line, but is it in the parent company's best long term interests? Nobody knows for sure. But the clock is ticking for the Time Inc., and Time Warner appears to be getting impatient.
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