Time Warner's Publishing Ad Sales Slow, But CEO Remains Positive

| About: Time Warner (TWX)

Time Warner’s (NYSE:TWX) CEO recently expressed his optimism regarding the magazine business despite the fact that ad sales growth has slowed due to recent economic concerns. Time Warner is a diversified media company that competes with other media conglomerates like Disney (NYSE:DIS), Viacom (NYSE:VIA) and News Corp (NASDAQ:NWS).

We estimate that Time Warner’s publishing business, which includes magazines such as TIME, Sports Illustrated, People & other, constitutes about 12% of the $38.90 Trefis price estimate for Time Warner’s stock. The Trefis price estimate is about 35% above the current market price and implies that Time Warner’s magazine business is worth nearly $6.5 billion.

(Chart created by using Trefis' app)

60-70% of the Value of Time Warner’s Magazine Business is From Ads

We estimate that 60-70% of the nearly $6.5 billion in value associated with Time Warner’s magazine business is attributable to advertising sales. This implies that magazine advertisements constitute around 8% of Time Warner’s value. So while Time Warner shareholders are vulnerable to a slowdown in magazine ad sales, the threat is not as significant compared to trends that impact other Time Warner businesses like Warner Brothers (37% of stock), HBO (20% of stock) and cable networks like TNT, TBS and CNN (collectively about 23% of stock).

CEO Remains Positive

According to Time Warner’s CEO, the magazine business is still healthy with good cash flow and return on investments. In fact, Time Warner was the only company with a big magazine business that made money during the recession. However, the CEO acknowledges that the recent economic uncertainty has softened the ad sales growth, but he remains confident that increasingly common digital forms of magazines will make ads more effective and targeted, thus generating revenue opportunities.

See our complete analysis for Time Warner’s stock.

Disclosure: No position