I am pondering why I am still hanging on. My cost basis was $12.10 and we sold half our shares in the low $20's amid the flurry of news about Carl Icahn, share buy backs and breaking up the company. I sold some stock and he sold some stock, I kept some shares and he kept some shares. Mine are of little consequence except to me. His are of the utmost importance to everyone.
As long as Carl still has some hope, should we? TWX is trading around $14 these days. This is a story of a company going nowhere fast. It has been improving AOL over the past few years and the site is very good in my estimation. But that does not seem to be producing much growth.
As AOL improves, so do the competitors and to a large part the status quo continues. From my perspective, the Web business is just a spending game where the stakes keep increasing but the rewards are not always tangible. (Disclosure: AOL is the mothership for BloggingStocks.com which by many metrics has been very successful, but our success has limited impact on AOL's overall revenue).
The cable division is larger now after completing the acquisition of Adelphia Communications, but this has not produced the intended results either. TWX is a major player in cable -- for now, that's a big so what?
Warner Brothers Studios has had some big hits, including the Pirates of the Caribbean Harry Potter Franchise, the Biggest in History and is planning two more in the series. The problem is that the movie business is hit or miss. Fewer pictures are getting made, the stakes are ever increasing, and the industry has not been pegged for major growth for a decade.
The magazine business has been pegged for negative growth with the advent of the Internet. Based on what I pay for most of my subscriptions, I think that they are just covering the printing and shipping costs, and like so many of their enterprises, are 99% advertising dependent. They have sold off many titles and streamlined the business. This is true of almost all the Time Warner divisions.
Time Warner has done a lot of clean-up. New CEO Jeff Bewkes has been a leader in this regard and continues to seek constant mission improvement from everything I can see. But that does not mean there will be strong revenue growth if the economy continues to weaken.
Look at it this way: If you are a teacher or a construction worker, no matter how hard you work and how good a job you do, you will only earn so much money. If you are an investment banker, bond trader or hedge fund manager, you can get a million dollar bonus in a year that you and the company (and shareholders) were losers. Perhaps just a smaller bonus. Bewkes and his team can play the hand they were dealt perfectly and still not win anything.
By that measure I agree with Carl Icahn that Time Warner needs to be split up by creating independent operating companies. Notice I did not say sold off, although if I was on the inside I would certainly look at all the options.
I have thought for a long time that TWX is a conglomerate with many entities that do not have to be united, and derive little of the promised synergies. I would rather they change the model and spin out all of the divisions and make TWX a holding company, each division to sink or swim on it's own.
If you own Time Warner, you own a media index fund, and it has been performing like one. It will probably be a safe place for your money, but unless it changes the model, I do not have much faith left that it will make you a lot of money in the near future.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I am a shareholder in TWX.
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Reader Comments (Page 1 of 1)
3-21-2008 @ 11:37AM
e khoury said...
Surely a blogger on a site owned by TWX should know that it is Disney behind the Caribbean trilogy, and not HIS mother ship?
3-21-2008 @ 12:16PM
Sheldon L said...
Thanks ek, good catch,
Now corrected... I had Pirates on the mind having just put away the discs my teenage boys left out. At least I used a movie franchise instead of a game franchise -- they always leave out the Warcraft discs too.
And my editors...I don't know what their kids are doing but I know they reviewed this in the middle of the night.
;-)
3-22-2008 @ 6:31AM
Danny said...
Your post/explaintion of TWX's problems were described perfectly. TWX should have spun off the 5 divisions and have TWX as the 6th(holding company) The divisions do not work together and if anything have been holding the share price down. At least the way described in your post if a division does well it will get rewarded.
This way every TWX shareholder will own shares in all 6 divisions and as far as TWX the company it changes nothing except perception.
Now if Bewkes really wants to regain value to TWX's share holders he would split TWX into 10 or more company's/divisions and put them up for auction. Sell them to the highest bidders. spinning them off will not create any real value since Wallst. will still decide the value. Let the other Media company's that will be the bidders decide. Let's face it they are in the field and "have a bit more knowlge than the traders".
If this were to happen there would be a frenzy and TWX would easly fetch above 20. More like $22-25 a share. Why not do this, who in his right mind would "mind"?
3-22-2008 @ 6:44AM
Danny said...
One more thing:
The management of TWX was so off with runing AOL. I still can not understand how after the merger they kept Roadrunner and AOL running as 2 companys. The first thing that should have been done was merge RR into AOL and this way anyone receiving broadband thru TWX would be on AOL page and not RR page that is useless. If they would have made that change the loss of AOL subs would not have seemed as bad. In stead of the 9 million they have now, down from 27 million they would probably have 15-17 million and a lot more eyeballs, that would have brought in ad dollars. Perception
What were they thinking?
3-22-2008 @ 7:49PM
Sean said...
"The first thing that should have been done was merge RR into AOL"
That would have been nice, but one of the anti-trust conditions of the merger was that AOL couldn't be offered on the TWC network unless there were at least 3 other companies offered access in the same market within 90 days.
3-24-2008 @ 3:09AM
Danny said...
To Sean, your comment is true however I did not say offer. TWX should have eliminated RR and just provided AOL.
On top of that the TWX managment should never have agreed to what you described. That was a very "stupid" move. A year or two later when CMCSA bought the cable from ATT they did not have to provide such an agreement. Cmcsa has become the largest cable company by far and is not required as far as I know.
Anyway it just shows how inapt Parsons was. I beleive any other CEO would have done well with all the troubles TWX/Aol had. Ted Turner would have been the right guy and so would have Bob Pitman. I beleive Bewkes would/could have been the right guy instead of Parsons back then. The enviorment today is way different and I beleive Parsons has left this company way to damaged. An Auction of the many divisions to the highest bidders would be the right thing to do for shareholders. Otherwise TWX will move no where, It has become the ATT of the past. (Armstrong fu-ked that company too) only to have it broken up..
3-24-2008 @ 12:53PM
JD said...
*interesting how Bewkes' 2007 compensation was a 31% increase over 2006, yet TWX performance was down 24%. Explain to me how his compensation is tied to stock performance, ... inversely??
Just another example of waste at AOL/TWX.
Maybe Soledad can ask that question at the next company meeting.