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Time Warner (TWX)
Time Warner Profits Slump 53%; New CEO on Horizon
It would not be fair to say that Time Warner has fallen on hard times. For that phrase to be used a company would have to have fallen into a sudden slump. This has simply not been the case for Time Warner: the company hasn't seen growth in years (nearly 7, to be precise). Compared to media companies like News Corp. (NWS: Charts, News, Offers), or even online advertisers like Google (GOOG: Charts, News, Offers), the New York-based company has not been the golden child of the stock market. Yes, the company did negotiate the disastrous merger with AOL, but one has to hope that something will come up on the horizon that will turn things around. For now that hope rests on incoming CEO Jeff Bewkes.
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The company announced that it had earned $1.09 billion, or earnings per share of $0.29. Compare this to the $2.32 billion (EPS of $0.57) from September 2006 and it is quite evident that something is not right. You may think that a 53% drop in earnings would surprise or even enrage investors. Turns out that analysts had actually expected such a big drop in earnings, which is why Time Warner shares were not hit hard in early Wednesday trading. Included in the better part of bad news was that, after adjustments, Time Warner increased its EPS from $0.19 in 2006 to $0.24.
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It wasn't like the company didn't have ample opportunity to make money (it grossed $937 million on the film "Harry Potter and the Order of the Phoenix"). As has been the case since 2000, Time Warner's AOL division continues to be the black sheet in the family, which includes HBO, CNN and Warner Brothers. AOL reported a 23% drop in profits, mostly due to a continued decline in subscription services. Online advertising revenues did increase by 13%, but they were not high enough to offset losses. AOL has begun to shift focus from subscribers, or which the company has roughly 10 million, to an advertising-based model. Due to the expanding clout of Google (GOOG: Charts, News, Offers) it will be difficult for Time Warner to make any deep inroads, especially considering that advertising revenue declined in the latest period.
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Performance expectations are steadily growing for incoming CEO Jeff Bewkes, who was named the successor to Dick Parsons on November 5th (who helped negotiate the disastrous AOL merger). Time Warner's share price has barely moved from its 2004 level. Its one high point came in the fall of 2006, when shares jumped from $16 to $22 over the course of 5 months. Since then the company sold of its stake in the Atlanta Brave's baseball team (worth $460m) to Liberty Media, a deal which also had Time Warner give up several magazines and a billion dollars in cash. Shares have fallen 15.6% so far in 2007, with much of the loss coming since July. While future expectations are far from lofty, all eyes seem to be on January 1st - the day Jeff Bewkes takes over.
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Click here to read a detailed profile of Time Warner.
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