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Time WARNER(NYSE:MOS) November 7, 2013

Time WARNER(NYSE:MOS) November 7, 2013. Zijian (Paddy) Gu , Zige (Z) He, Charalampos ( Haris ) Ntantanis. Dec. 5, 2013. Agenda. Company overview Macroeconomic analysis Industry Analysis Equity market performance Financial analysis Valuation Recommendation. Company Analysis.

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Time WARNER(NYSE:MOS) November 7, 2013

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  1. Time WARNER(NYSE:MOS)November 7, 2013 Zijian (Paddy) Gu, Zige (Z) He, Charalampos (Haris) Ntantanis Dec. 5, 2013

  2. Agenda • Company overview • Macroeconomic analysis • Industry Analysis • Equity market performance • Financial analysis • Valuation • Recommendation

  3. Company Analysis • World’s Third Largest Media Conglomerate • Well Known Brand: CNN,TBS, TNT,Time Inc. • 70% of Revenue comes from U.S. • Three business segments: Networks , Filmed Entertainment , and Publishing • Adjusted Operating Income increased 8% to $1.7 billion • Adjusted EPS rose 20% Source: Hoover’s - Time Warner Inc, 2012 10 - K P46, 2013 Q3 CFO Earning Presentation P1,P10

  4. Company Analysis Film and TV Entertainment • 12.018B in Revenue - 39% of Total Revenue • Produce and distribute feature films, television, video games and other programming • Feature Films and Television- Warner Bros • Home Entertainment - Warner Home Video, Warner Bros. Digital Distribution, Warner Bros. Interactive Entertainment • Revenue from Subscription grow at 30% and 36% for 2011 and 2012 accordingly • Revenue change for the segment decreased from 9% in 2011 to (5%) in 2012 • mainly due to decrease in advertising revenue and content revenue Source: Mergent - Time Warner Inc, 2012 10 - K P47,57

  5. Company Analysis Network Division: • 14.204B in Revenue - 50% of Company’s Total Revenue • Turner Networks • TBS, TNT, Cartoon Network, truTV, Turner • Home Box Office Services • 114,000,000 worldwide subscribers( 41,000,000 domestic pay subscribers and 73,000,000 international pay and basic tier television service subscribers ) • Revenue growth at an average of 6% per year from 2010 to 2012 • Operating Income growth at an average of 6% per year from 2010 to 2012 • For year end 2012, Company recognized 208 Million of Charges relative to the TNT Turkey Shutdowns. • 174 million related to asset impairments of long-lived assets, inventories and goodwill Source: Mergent - Time Warner Inc, 2012 10 - K P46, 54

  6. Company Analysis Publishing • 3.436B - 12% of Total Revenue • Time Inc. • magazine publisher • operates a number of websites, book publishing business and marketing businesses. • Operating Income has a change of (25%) in 2012 • Subscription and Advertising Revenue both decreased by 5% in 2012 • 11 Million trade name impairment • Incurred 60 million charges related to restructuring cost in first quarter 2013 Source: Mergent - Time Warner Inc, 2012 10 - K P46,P61

  7. Company Analysis International Expansion will be the focus for Network Segment Expect Subscriptions revenue to grow at constant rate Transforming into a pure global entertainment company, Keep their Most profitable businesses and get rid off others • March 2009 - announced that it would spin off Time Warner Cable • May 28, 2009 - announced that it would spin off AOL • March 2013 - announced that it would spin off Time. Inc Source: Capital IQ - Time Warner Inc.

  8. Company Analysis - Risk Factors Source: 10-K 2012 P24 - P27

  9. Company Analysis-SWOT Source: OneSource - Time Warner Inc.

  10. Recent Financial Information Data from: Capital IQ, Financials, TimeWarner Inc.

  11. Recent Financial Information Data from: Capital IQ, Financials, TimeWarner Inc.

  12. Revenues Breakdownby segment Data from: Capital IQ, Financials, TimeWarner Inc.

  13. Marco Analysis - Key Factors • TV Industry - Increase in Disposable Income drives Advertising Revenue • Publishing Industry – Increase Discretionary Purchase • Movie and Video Production Industry – Increase Discretionary Purchase Source: IBIS World

  14. Marco Analysis - Key Factors Television Production Industry: • Total advertising expenditure is expected to increase slowly until 2016 • The number of cable TV subscriptions is expected to decrease slowly in 2013 Source: IBIS World

  15. Marco Analysis - Key Factors Magazine & Periodical Publishing Industry: • Growing number of ways for advertisers to market products • Internet – only advertisement require lower production and distribution cost • Printing Advertising Expenditure is expected to decrease Source: IBIS World

  16. Marco Analysis - Key Factors Movie & Video Production Industry: • Digital technology advancement increase potential opportunity for the industry • lower consumer demand for feature films negatively affect this industry • Increase interest rate will reduce producer’s ability to acquire capital Source: IBIS World

  17. Industry Analysis - Industry Performances • Television Production Industry has the best performance forecast • Going online has become the trend for all three industries Source: IBIS World

  18. Industry Analysis • Television Production • Contribution to GDP is increasing • Number of Channel has increased • Online TV program increase revenue Television Production Magazine & Periodical Publishing • Movie & Video Production • Digital technology increase competition • Competition for talent drives revenue down • Magazine & Periodical Publishing • Huge decline in printing advertisement • Advertising revenue has largely shift to online competitors Movie & Video Production Source: IBIS World

  19. Industry Analysis • Similar players in the Movie and Video Production and the Television Production Industries • Concentration is low in the Magazine and Periodical Publishing Industry but high in the other two • Large corporations have high ability to minimize production risk Source: IBIS World

  20. Strong Brand Name Industry Analysis - Key Success Factor Establish positive perceptions Skilled and Talented Workforce Enable great product and strong brand Cost Control Meet contractual agreement Adaptation to New Technology Improve outcome and reduce cost Source: IBIS World

  21. Equity Performance Source: Google Finance

  22. Technical Analysis Source: Yahoo finance

  23. Financial Analysis

  24. Financial Analysis

  25. DuPont Analysis

  26. Cost of Capital *As of December the 4th

  27. DCF Analysis * All years above represent fiscal years ended December 31

  28. Ben Graham Formula

  29. Comparable Analysis

  30. Comparable Analysis

  31. Comparable Analysis

  32. Decision Drivers Positive drivers • Better Market prospect • Spin-off of Time. Inc • Constant Growth in Network Segment and better prospect from Film Segment Negative drivers • Constant Asset Impairment • Underperform the Market

  33. Valuation Results *As of December the 4th

  34. Recommendation Watchlist

  35. Q&As Thank you for your attention! Any questions??

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