By Ashesha Mehrotra
Time Warner Inc. stock plummeted 5 percent after the company reported underwhelming fourth-quarter earnings Wednesday, as content and subscription revenue for both HBO and Turner television network dashed Wall Street’s hopes.
The stock closed at $60.03, down $3.18.
The company’s net income rose to $857 million, or $1.06 per diluted share, from $718 million, or 84 cents per diluted share, in the December quarter last year, surpassing analysts’ forecast of $1.01.
Revenue dropped to $7.08 billion, a 5.9 percent decrease from $7.52 billion, missing estimates of $7.53 billion.
Time Warner Stock Jan2015 – Jan2016
While revenue in HBO and the Turner division did rise, several analysts said that it was below their expectations. Stifel analyst Benjamin Mogil said in a report that the 3.2 percent gain in HBO subscriber revenue came in below the 4.7 percent Wall Street expected.
“Of focus will likely be weaker than expected subscriber revenue at both Turner and HBO. HBO/Cinemax added 2.7 million domestic subscribers during the year, but given the limited subscriber revenue growth, much of that appears to be have been tied to fixed rate system deals,” he said in the report.
Media investors have had growing concerns over the declining interest in paid TV viewership, as media consumption habits are changing fast, especially among young adults ages 18 to 34.
According to a recent Pew Research Center study, 24 percent of American adults do not have cable or satellite services at home citing online streaming services such as Hulu and Netflix, cost of subscription, and no interest in TV as the top three reasons.
But Time Warner has made concerted efforts to play catch-up with its online services and crowd-puller movie releases.
The media conglomerate launched HBO NOW, the standalone online version of the premium TV channel, last year in April and boasts of 800,000 paying subscribers, contributing significantly to the 2.7 million net new HBO viewers last year.
HBO CEO Richard Plepler said in a webcast Wednesday, “We’re very excited about where we are.”
Plepler said the company is only just getting started. “We’re not yet out on two major platforms, PlayStation and Xbox” – on HBO Go, those platforms account for 20 percent of viewership – “and we’ve not yet put out the content like Jon Stewart, Bill Simmons, Vice Daily News Show, that we think is particularly suited for those platforms.”
Revenue for Warner Bros, the company’s movie outfit, also dropped, 13 percent to $3.35 billion from $3.8 billion in the prior-year period, the decline attributed to lack of hit movie releases and a strong dollar.
After suffering through a string of flops in the December quarter, including “Pan” with Hugh Jackman and “Our Brand is Crisis” starring Sandra Bullock, WB is in need of some heroes.
The movie studio now has high hopes for “Batman v. Superman: Dawn of Justice” which is slated for a late March release.
“2016 is also set to be a blockbuster year at Warner Bros.,” Time Warner Chief Executive Jeff Bewkes told analysts Wednesday during an earnings call. “We are expecting another record performance, this time led by our theatrical business.”
The company forecast for 2016 earnings per share is $5.30 to $5.40, beating analysts’ estimate of $5.26.
The company increased the quarterly dividend to 40 cents and announced a $5 billion share buyback program, the first new authorization since June 2014.
“Further demonstrating our commitment to shareholder returns, during 2015 we returned $4.8 billion to our shareholders through share repurchases and dividends, and this morning announced a 15% increase to our dividend and a new $5 billion share repurchase program,” said Time Warner Chief Executive Jeff Bewkes.
Time Warner reported a net income of $3.83 billion, or $4.58 per share, for all of 2016, a 1.4 percent increase from $3.82 billion, or $4.41 per share last year. Revenue shot up to $28.11 billion in 2015, a 2.8 percent rise from $27.11 billion in 2014.