AOL Ad Revenue May Drive Higher Valuation for Time-Warner

| About: Time Warner (TWX)

Quite an enthusiastic note on Time-Warner (NYSE:TWX) today from Citigroup’s Jason Bazinet, based largely on his highly bullish outlook on AOL’s new strategy of focusing on advertising revenue rather than access.

His theory is that AOL can grow EBITDA - earnings before interest, taxes, depreciation and amortization - from $1.85 billion in 2005 to $2.3 billion in 2009, even as revenues shrink substantially.

Bazinet asserts that investors will place a much higher valuation on ad revenue than access revenue, allowing an expansion of the company’s multiple for the AOL business. He figures the value of the company will increase from about $13 billion now to $24 billion in 2009. “We recognize that most investors will find these assumptions to lie somewhere between optimistic and outlandish,” he says in a research note.

Bazinet expects AOL’s ad revenue to grow from $1.19 billion in 2005 to $2.91 billion in 2009.

The analyst increased his price target for Time-Warner today to $24 from $21, and boosted his profit forecasts to 88 cents a share from 87 cents for this year, and to $1.04 a share from 99 cents for 2007.

Time-Warner shares today are up 21 cents at $19.27.

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