Talk about a tough act to follow.Multimedia conglomerate Time Warner ( TWX) and multimedia conglomerate wannabe Comcast ( CMCSA) are slated to report first-quarter financial results this week. The companies' numbers are always closely watched, but investors will be on the lookout for a little extra this time around. That's because given Viacom's ( VIAB)
Big ShadowCertainly, Viacom set the stage for this season's earnings with its better-than-expected results last week. Advertising revenue, which accounted for 48% of the company's top line in the first quarter, grew 21% from year-earlier figures. But advertising doesn't play the same role at Time Warner, accounting for less than 16% of revenue in 2003, and it is less of a factor at the cable operators. Instead, investors will continue to focus on subscriptions businesses: Whether Time Warner's America Online is getting any better at navigating the transition from dial-up Internet connections to a broadband consumer Internet, and to what extent cable operators, Time Warner included, will be able to convert advanced services to cash. Hanging over the results will also be investor concerns about where these companies will spend their cash. If Comcast, as rumblings have it, gives up on its bid for Disney, the next question is whether the company, Cox or Time Warner -- or some combination thereof -- will make a run at Adelphia Communications, the bankrupt cable operator that last week
At Time Warner, expections for the first quarter ended March 31 are for $9.51 billion in revenue, according to the consensus of analysts surveyed by Thomson First Call. Operating income before depreciation and amortization (abbreviated as OIBDA and synonymous with earnings before interest, taxes, depreciation and amortization) is expected to be $2.05 billion. Earnings per share should come in at 9 cents. While expecting Time Warner's film division, publishing operations and Turner cable networks to drive first-quarter EBITDA growth, Morgan Stanley's Rich Bilotti points to several challenges the company needs to address on its way to hit Bilotti's $21 price target on the stock. Among them, Bilotti wrote in a report earlier this month, Time Warner Cable must deliver consistent results throughout 2004, easing concerns that long-term growth will be slowed by competition from telcos in the high-speed data business, and from satellite operators in video. Bilotti is expecting 155,000 to 165,000 new residential subscribers for broadband service in the first quarter. Although a rollout of Internet-protocol telephony on Time Warner's cable systems is part of the growth story, Bilotti isn't forecasting much impact on the cable unit's results in 2004, its rollout year. (Bilotti has an overweight rating on Time Warner; his firm has done recent banking for the company.) Another factor, says Bilotti, is that AOL "must prove its value as a consistent source of cash flow through a combination of advertising growth, broadband subscriber additions, and network and marketing cost reductions." While cost reductions can drive EBITDA growth this year, says Bilotti, longer-term growth requires AOL capture "a material share of the broadband subscriber universe." He forecasts AOL will lose 500,000 U.S. subscribers in the first quarter -- the loss of 850,000 narrowband access subscribers offset by 350,000 new customers for AOL's content-only broadband product, which requires users to have high-speed access from a source other than AOL.