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Time Warner Is the Future of Big Media

NEW YORK ( TheStreet) -- For years, media giant Time Warner (TWX - Get Report) has intrigued me. The company specializes in great drama, but it created some real-world theater on Wall Street when it merged with -- some would say, was acquired by -- AOL (AOL).

That event generated some high ratings for market observers. The CEOs of both firms provided an excellent performance during the announcement. The market at the time could not know the merger would end in tragedy, with the spinoff of AOL. The divorce generated much applause from analysts and investors.

While AOL is still trying to find its footing in the realm of social media, Time Warner has seen a resurgence of sorts. Not only is the stock merely percentage points away from its 52-week high, but it has appreciated by over 130% over the past three years. Remarkably, this is despite a relatively flat performance on the year, gaining only gained 3% so far. Leading into the company's earnings announcement, I was eager to see if there was cause for optimism but more importantly to affirm my belief that the stock was trading at a considerable discount when compared to rivals such as Comcast (CMCSA), Disney (DIS) and News Corp. (NWS).

An Entertaining Quarter

For the period ending in March, Time Warner broadcast a net income of $583 million. While that exceeded analyst expectations, it also represented a decline of 11% from $653 million during the same period a year ago. Excluding items, first-quarter profit arrived at 67 cents per share -- topping analyst estimates of 64 cents as well as last year's figure of 58 cents. Revenue increased 4% to $7 billion, ahead of expectations of $6.82 billion.

Contributing to the increase in revenue were strong advertising sales, but the company attributed the performance to "better timing" of the NCAA's March Madness tournament. The company reported an increase of 6% in adjusted operating income to reach $1.35 billion, while operating margin expanded 30 basis points to 19.4%. In terms of outlook, the company reaffirmed its double-digit growth expectation for the balance of 2012.

Moving Forward

As disappointing as the decline was in net income, it did however top analysts' estimates. In assessing the overall report, it is clear that the business is moving in the right direction, for which the company's chairman and chief executive Jeff Bewkes said offered the following:
We're off to a great start to the year, and we're benefiting from strong momentum for our content across our businesses. In the quarter, we saw impressive viewership gains at many of Turner's networks, including TBS ranking as the No. 1 network on cable among its key demographics. Reflecting our confidence in our competitive position and growth prospects, we've repurchased almost $900 million of our stock so far this year.
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