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Time Warner Cable (TWC) recently reported its Q1 2011 earnings and based on positive trends in the broadband business, like advertising revenue growth, we have upgraded our stock price estimate for the company. Time Warner Cable competes with satellite pay-TV providers like Dish Network (DISH) and DirecTV (DTV), cable companies like Comcast (CMCSA), and telecom operators like AT&T (T) and Verizon (VZ).

Our price estimate for Time Warner Cable stands at $70.23, about 5-10% below the stock’s market price.

A Look at Time Warner Cable’s Advertising Business Growth

Time Warner Cable’s Q1 2011 results indicated solid growth in advertising revenues aided by improving market conditions. Although growth was better in 2010, some of this momentum has carried into 2011.

Time Warner Cable established a deal with Verizon to sell regional advertising on behalf of its FiOS TV service in regions like New York City, Los Angeles and Dallas. The company made a similar deal with AT&T as well. [1] It’s certainly interesting to see a company advertising a service that competes with its own, but it looks like the benefits of additional revenue outweigh the risks.

Two categories that recorded substantial growth in advertising revenues were automotive and media advertising, which together formed a major chunk of overall growth. But the company hasn’t hit its full potential in ad revenues yet.


(Chart created by using Trefis' app)

The Opportunity

If we look at annual advertisement revenue per video subscriber, the figure for Time Warner Cable stood at around $70 in 2010. This was notably lower when compared to companies like DirecTV. However, with expected improvement in revenues in 2011 (despite a drop in video subscribers), Time Warner Cable seems to be getting more efficient in its advertising business. The company hasn’t tapped its full potential yet, so there is still room for improvement.


Notes:

  1. Time Warner Cable’s Q1 2011 Earnings Transcript, SeekingAlpha

Disclosure: No position

Source: Time Warner Cable: Strong Ad Revenue Growth but Room for Improvement