OK, Time Warner released its Q1 07 earnings report this morning and, once again, the lede on so many press reports is that AOL’s turn-around strategy is a success. (Check out this Forbes piece with the headline “AOL Strategy Boosts Time Warner” or this CNNMoney piece which starts out saying that AOL, along with cable, deserves thanks for Time Warner’s better-than-expected earnings or this ZDNet report that concludes AOL seems to be on the right track.)
But, a cold, hard look at AOL’s numbers doesn’t lead me to any of these conclusions. In fact, from where I sit, AOL is slipping. Sure, year-over-year ad revenue increased by 40% to $549 million, but AOL’s ad revenue actually dropped by $17 million from Q4 06 to Q1 07. In comparison, from Q4 05 to Q1 06, AOL’s ad revenue jumped by $13 million, so I don’t think we’re looking at a seasonal decline.
And, AOL’s operating income before depreciation and amortization — a key profitability statistic — grew by 22% year-over-year to $542 million as marketing and dial-up network costs decreased. These costs, by the way, only decreased because AOL is focusing on its free portal business and jettisoning the costly all-in-one access business. AOL lost 1.2 million paid subscribers during the quarter, an expected drop that nonetheless was somewhat lower than the company expected.
Aside from the two bright spots — YOY ad revenues and OIBIDA increased — everything at AOL looks like it’s on the downswing to me. Take a look at some worrisome trends:
—Overall revenues dropped by $398 million as the number of paid subscribers plummeted.
—Average monthly unique visitors stayed flat at 111 million despite the big push to drive traffic to AOL’s sites.
—Average revenue less TAC per unit dropped sequentially for the first time in five quarters by $.14.
—Total page views dropped for the fifth straight quarter, declining by 425,000 during Q1 07.
— Monthly page views per unique visitor dropped for the fifth straight quarter, slipping by 1,000 during Q1 07.
Hello? With all the effort that Time Warner has put into turning AOL into an Internet advertising juggernaut, beefing up the high-profile videos shown across the AOL networks and forging pacts with big-ticket partners, why are all these things trending in the wrong direction? How will ad revenues continue to grow if page views continue to decline and unique visitors stay flat, or worse, decrease?
During Time Warner’s earnings call, Time Warner President/COO Jeff Bewkes predicted growth ahead in AOL’s performance, noting that a lot of key initiatives, such as the inclusion of ads in AOL’s email platform, will fully kick in this year. However, don’t look for the kind of YOY 40% ad revenue growth that AOL posted in Q1 07, Bewkes warned.
Well, unless there’s some kind of blockbuster growth ahead, AOL looks like a stinker to me. But apparently I’m alone in my views — the press and some investment banking firm analysts are hepped up on AOL’s performance.
| AOL Selected Statistics ($ in mil, except per sub.) | |||||
| 1Q06 | 2Q06 | 3Q06 | 4Q06 | 1Q07 | |
| Total U.S. AOL Subs. | 18,640 | 17,664 | 15,198 | 13,183 | 11,999 |
| Net Change | (835) | (976) | (2,466) | (2,015) | (1,184) |
| % Change | -4% | -5% | -14% | -13% | -9% |
| Total AOL Ad Revenue* | $ 392 | $ 449 | $ 479 | $ 566 | $ 549 |
| Net Change | $ 13 | $ 57 | $ 30 | $ 87 | $ (17) |
| % Change | 3% | 15% | 7% | 18% | -3% |
| Total AOL Revenue | $ 1,981 | $ 2,046 | $ 1,983 | $ 1,856 | $ 1,458 |
| Net Change | (31) | 65 | (63) | (127) | (398) |
| % Change | -2% | 3% | -3% | -6% | -21% |
| Domestic Ad Revenue (Less TAC) | $ 275 | $ 295 | $ 304 | $ 361 | $ 345 |
| Net Change | $ 16 | $ 20 | $ 9 | $ 57 | $ (16) |
| Avg. Mo. Unique Visitors (mil.) | 107 | 113 | 112 | 111 | 111 |
| Net Change | (2) | 6 | (1) | (1) | - |
| Ad Revenue Less TAC Per Unit | $ 2.56 | $ 2.62 | $ 2.71 | $ 3.25 | $ 3.11 |
| Net Change | $ 0.18 | $ 0.06 | $ 0.09 | $ 0.54 | $ (0.14) |
| Total Page Views (mil.) | 52,634 | 51,665 | 48,692 | 44,383 | 43,959 |
| Net Change | (893) | (969) | (2,973) | (4,309) | (424) |
| Monthly Page Views/Unique Visitor | 163 | 153 | 145 | 133 | 132 |
| Net Change | (1) | (10) | (8) | (12) | (1) |
| Domestic Ad Revenue Less TAC Per 1,000 Page Views | $ 5.23 | $ 5.71 | $ 6.24 | $ 8.13 | $ 7.85 |
| Net Change | $ 0.40 | $ 0.48 | $ 0.53 | $ 1.89 | $ (0.28) |
| OIBIDA | $ 444 | $ 505 | $ 563 | $ 302 | $ 542 |
| Operating Income** | $ 265 | $ 329 | $ 390 | $ 910 | $ 1,084 |
| *Includes a one-time $19 benefit from an accounting change for Q1 07 | |||||
| **Includes a one-time $670 million gain from the sale of AOL Germany and lower depreciation ($22 million) and amortization ($11 million) costs. | |||||
| Source: Emerging Media Dynamics, Inc. analysis of company data. © 2007. | |||||
Posted by Cynthia Brumfield at 12:51 PM | Print | Comments (0)
Despite absorbing some neglected and outmoded Adelphia cable systems and on the heels of its stock spin-off from parent company Time Warner, Time Warner Cable continued to post healthy gains in overall and new service subscribers during Q1 07 according to the company’s earnings report (PDF here) released this morning.
On a pro forma basis (assuming the spate of recent acquisitions and system swaps are reflected in all time periods), revenues rose 10% year-over-year to $3.7 billion for the nation’s number two cable company while cash flow advanced 12% to $1.3 billion.
Even with underperforming Adelphia systems dragging down growth, Time Warner Cable boosted its basic subscriber count by 46,000 to reach 13.5 million by quarter’s end. High-speed data growth accelerated to 356,000 net new customers during the quarter, up from the 241,000 net adds during Q1 06 and 245,000 during Q4 07. At the end of the quarter Time Warner Cable served seven million cable modem subscribers, representing 27% of homes passed.
Digital video subscriptions jumped by a net 278,000 subscribers during the quarter, up from the 241,000 net adds during Q1 06, leaving Time Warner Cable with 7.6 million digital video customers, reflecting 56% of basic subscribers, at quarter’s end.
Digital telephony growth seemed to drop off a little, although with the complex changes in system composition, it’s hard to tell. Time Warner Cable added 234,000 net new digital voice, or VoIP customers, during Q1 07, down slightly from the 270,000 net adds for Q1 06 — but the company stressed that VoIP growth accelerated in the “legacy” systems, those that were owned by Time Warner in both Q1 06 and Q1 07. Legacy systems added 210,000 net new voice customers during Q1 07, up from 208,000 net new voice customers added in Q1 06.
By quarter’s end, Time Warner’s digital telephony customer count was 2.094 million or about 12% of homes passed. During the earnings call, company executives revealed that Time Warner Cable will roll out a “local-only” digital voice option this year which, presumably, will be cheaper than the company’s current options and could likely spur renewed or bigger growth in Time Warner Cable’s voice service.
Time Warner Cable currently offers unlimited local and long distance digital voice service for $39.95/month for triple-play customers and, in some markets, offers unlimited local and regional long distance digital voice service for $29.95/month. The local-only voice service will likely be priced substantially below these levels ($15 to $20 per month?).
| AOL Selected Statistics ($ in mil, except per sub.) | |||||
| 1Q06 | 2Q06 | 3Q06 | 4Q06 | 1Q07 | |
| Total U.S. AOL Subs. | 18,640 | 17,664 | 15,198 | 13,183 | 11,999 |
| Net Change | (835) | (976) | (2,466) | (2,015) | (1,184) |
| % Change | -4% | -5% | -14% | -13% | -9% |
| Total AOL Ad Revenue* | $ 392 | $ 449 | $ 479 | $ 566 | $ 549 |
| Net Change | $ 13 | $ 57 | $ 30 | $ 87 | $ (17) |
| % Change | 3% | 15% | 7% | 18% | -3% |
| Total AOL Revenue | $ 1,981 | $ 2,046 | $ 1,983 | $ 1,856 | $ 1,458 |
| Net Change | (31) | 65 | (63) | (127) | (398) |
| % Change | -2% | 3% | -3% | -6% | -21% |
| Domestic Ad Revenue (Less TAC) | $ 275 | $ 295 | $ 304 | $ 361 | $ 345 |
| Net Change | $ 16 | $ 20 | $ 9 | $ 57 | $ (16) |
| Avg. Mo. Unique Visitors (mil.) | 107 | 113 | 112 | 111 | 111 |
| Net Change | (2) | 6 | (1) | (1) | - |
| Ad Revenue Less TAC Per Unit | $ 2.56 | $ 2.62 | $ 2.71 | $ 3.25 | $ 3.11 |
| Net Change | $ 0.18 | $ 0.06 | $ 0.09 | $ 0.54 | $ (0.14) |
| Total Page Views (mil.) | 52,634 | 51,665 | 48,692 | 44,383 | 43,959 |
| Net Change | (893) | (969) | (2,973) | (4,309) | (424) |
| Monthly Page Views/Unique Visitor | 163 | 153 | 145 | 133 | 132 |
| Net Change | (1) | (10) | (8) | (12) | (1) |
| Domestic Ad Revenue Less TAC Per 1,000 Page Views | $ 5.23 | $ 5.71 | $ 6.24 | $ 8.13 | $ 7.85 |
| Net Change | $ 0.40 | $ 0.48 | $ 0.53 | $ 1.89 | $ (0.28) |
| OIBIDA | $ 444 | $ 505 | $ 563 | $ 302 | $ 542 |
| Operating Income** | $ 265 | $ 329 | $ 390 | $ 910 | $ 1,084 |
| *Includes a one-time $19 million benefit from an accounting change for Q1 07 | |||||
| **Includes a one-time $670 million gain from the sale of AOL Germany and lower depreciation ($22 million) and amortization ($11 million) costs. | |||||
| Source: Emerging Media Dynamics, Inc. analysis of company data. © 2007. | |||||
Posted by Cynthia Brumfield at 10:49 AM | Print | Comments (0)
One of the best-run and most successful cable companies in the country is going private after a two-year effort by the founding family to buy the company. (The Deal Blog has a great recap of the efforts by the Dolan family to take the company private, although some of the numbers seem off.)
The Dolans’ latest bid of $10.6 billion translates into $26.26 per share, an 11% premium over the company’s closing price yesterday. Including the assumption of debt, the deal is reportedly worth about $22 billion. Reports say that the Dolans — father Chuck founded the company and his son, Jimmy, currently runs it — want the hundreds of millions in annual cash the company spins off, and that’s true.
But, the real impetus, the factor that has driven other formerly publicly traded cable companies such as Cox Communications to go private, is the fact that Wall Street simply fails to value the cable industry. Cablevision’s stock, like that of other cable companies, has languished. Investors fear increased competition to cable from phone companies (and lately the Internet) and have backed away from cable, despite phenomenal growth in the industry’s high-speed data, telephony and digital cable customer counts.
At the end of 2006, Cablevision had 3.127 million subscribers (the company reports its Q1 07 earnings tomorrow) which gives the deal a value of around $7,035 per subscriber assuming total deal value of $22 billion, which equates to 13 times annual cash flow per subscriber (around $542 using latest data). In contrast, Comcast recently purchased Patriot Media for around $6,000 per subscriber, a deal worth about 10 to 11 times per subscriber cash flow for that company.
We’ll get a better fix on the buyout and the values per subscriber tomorrow when Cablevision reports its earnings. But, from the sounds of it, investors are getting top dollar for the company and the Dolan family is getting a cash-generating machine.
Posted by Cynthia Brumfield at 9:52 AM | Print | Comments (0)
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