Time Warner (TWX) reported a lackluster Q1 in which it missed Street EPS estimates by a penny. TWX did, however, beat Goldman Sach’s revenue, EBITDA, and EPS estimates by about 2%. It wasn’t enough though, and Goldman reiterated its Neutral and put its price target under review:
1Q2008 performance was primarily driven by upside at AOL and Publishing vs. our estimates. Despite acceleration in AOL traffic trends, ad revenue growth decelerated for the fifth quarter in a row… Networks benefited from broadcast spillover with yoy ad revenue growth of 13%, matching the growth in 4Q07. TWC’s revenue and EBITDA results were in-line with our estimates, although sub metrics were much better than expected, fuelled by marketing spend up +28% yoy. TWX announced that it would completely spin off Cable, but did not comment on timing, mechanics or the use of proceeds from any possible re-leveraging.
Looking to the future, Goldman doesn’t see room for much improvement either:
With continued anemic operating results and a lack of a definitive plan for Cable, we believe that investors will be somewhat disappointed. We remain Neutral rated on TWX shares and believe the potential upside driven by restructuring and financial engineering will be somewhat limited as we believe the “stub” assets are not significantly undervalued. Also, we value top-line driven profitability more positively than cost cutting and believe most savings or excess liquidity generated by TWX should be redeployed into investments for revenue growth.
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