Should Time Warner Investors Fear Netflix?

(Source Warner Bros.)

“We had another very successful year in 2013,” said Time Warner (NYSE:TWX) Chair and Chief Executive Officer Jeff Bewkes proclaimed in the media company’s fourth-quarter and full-year earnings release. Yes, Time Warner — owner of Time magazine, the Home Box Office premium cable network, CNN, and Warner Bros. studios — beat Wall Street expectations for fourth-quarter profit and made the biggest increase to its stock-buyback fund in seven years. Investors, who bid shares 48.56 percent in all of 2013 but pushed shares down 10.5 percent this year to date, reacted to the earnings release and the stock buyback with modest optimism. Shares advanced as much as 0.34 percent — reaching 62.40 — in pre-market trading Wednesday morning.

Time Warner operates three segments: Networks, Film and TV Entertainment, and Publishing, and the company’s earnings beat largely came from the box office success of two films: The Hobbit: The Desolation of Smaug and Gravity. But strength in the company’s Turner Broadcasting business — which includes, CNN, TBS, Cartoon Network, Adult Swim, as well as its premium cable channel HBO – also enabled Time Warner to post its fifth consecutive year of double digit growth. Both the Networks and Film and TV Entertainment units contributed significantly to profitability, posting strong viewing numbers and garnering numerous awards in the past year.

TBS was ranked as ad-supported cable’s number one network in primetime television for adults ages 18 through 49; Adult Swim recorded its most-watched year in history and remained the number network on ad-supported cable among adults ages 18 through 34 for the ninth straight year; HBO received the most Emmy Awards of any network, tied for the most Golden Globe Awards, and notched its biggest gain in domestic subscribers in 17 years; and, Warner Bros. had its best year ever, with its films earning “an industry leading 21 Academy Award nominations — including best picture nominations for Gravity and Her.” Plus, Warner Bros. television shows — The Big Bang Theory, The Voice, and The Following — posted strong numbers as well.

Excluding certain charges, Time Warner earned $1.17 per share in the fourth-quarter, a few cents over the $1.15 predicted by analysts on Wall Street. Meanwhile, revenue also surpassed expectations, rising 5 percent to $8.6 billion. Yet, even though profit beat expectations, higher costs and several write-downs hurt growth at HBO, causing overall profit to come in 12 percent lower than in the year-ago quarter.