Through TheFLY's Eyes: Time Warner Inc.
from Theflyonthewall.com






Cable Strong, Cash Generation Strong, AOL Still Weak

Time Warner's (TWX) stock acts just like its revenue growth--one big flatline. Time Warner reported revenue growth of 1% when compared to last year, essentially the same returns as for shareholders during the past year.

However, beneath the top-line there are positives at the company.The big number was the 82,000 increase in basic video cable subscribers, this was the largest quarterly net gain in six years. Comcast (CMCSA) also had showed a strong showing in this metric, which means that the massive investment the cable companies have made ($90 billion to upgrade network) is paying off. A bundled service is bringing back satellite users and adding new customers.

All the metrics with Time Warner Cable were good--total revenue was up 15% with subscriptions from high-speed data, digital phone and enhanced digital video services all adding to growth.

The big disappointment continues to be AOL: revenues down 7% due to a decline in subs of 800,000. However, ad revenue was up 26%.

While the stock has flatlined, the company is too powerful to be ignored by the investment community. The company grew OIBDA 8% and generated $1.6 billion in free cash flow for the quarter. 58% of cash generated from operations is free cash flow, a powerful number. Time Warner has repurchased 10% of its outstanding float while the investment community has ignored the stock and is not stopping its buyback. The Board announced an additional buyback of $7.5 billion during the quarter.

Time Warner is a powerful company in important growth industries. It meets virtually all the value metrics for value investors and growth investors will need to flock back into this name when revenue growth returns. From this Fly's perspective, this is a gem of a stock that is too cheap.