Interview: A preview of A. O. L division
Federated Investments --- Kohler, Angela --- Analyst
>> yahoo is demanding more shares of google. the dispute stems from a partnership that the two internet companies formed four years ago. yahoo received stock options as part of an agreement to offer google’s search engine on its own website. yahoo stands to gain from google’s coming i.p.o., holding 5.5 million shares, worth some $600 million. the two companies are in settlement talks. their home headquarters are only five miles apart in california. for the second quarter, wall street expects time warner’s profit to hit 15 cents a share, the sixth straight quarter of profit increases at the world’s largest entertainment company. for a preview, we bring in angela kohler, global media analyst with federated investments, joining us from their headquarters in pittsburgh. thank you for joining us. your thoughts on this, 15 cents a share tomorrow, the big number. but this is, of course, a multimedia company. what division, what number in particular will be the most telling for us tomorrow?
>> i think investors will continue to focus on the key a.o.l. division. that’s been their trouble spot and we need to see they can grow their way out of this, that the subscriber losses in the core division won’t hurt growth going forward and that needs to be offset by growth in the access division and international growth.
>> if you look at the total revenue picture, time warner forecast to do about $10.4 billion in total revenues for the quarter, down from $10.8 a year ago. so the revenue slide continues. do you see that ending and why?
>> i think it depends on which division you’re looking at. their cable networks have done extremely well. cbs has picked up rating share and hbo has done well. you also have film entertainment with one hit after the other in that division―“lord of the rings,” and “harry potter” and more to come. they have been offset by weakness in a.o.l. and publishing. it’s a mixed bag right now and not the best growth story in media but media across the board has had troubles this year. it’s how much management can find ways to get out of the trouble spots.
>> what do you think of the overall media sector? do you have a favorite player in the group and if so, why?
>> we prefer names like disney. we like news corp. a lot. we think those names can outgrow some of the trouble in media overall because of unique things about the companies like the disney theme parks. at news corp., several of their businesses internationally are doing much better. overall it’s a great place to invest. the entire group has been beaten down this year and we’ve had lower valuations as well as a great second half, fortressed by increased political spending, the tight presidential election, helping political advertising spending and the olympics, firming up pricing for television stations in the third quarter.
>> if you look at time warner year to date, the stock is down 8%. compared to the s&p media index, down 13%, it’s outperforming. underperforming the broader market . so you suggest this might be a buying opportunity? would you buy ahead of the news or after it?
>> we’re not big fans of time warner in general. it’s done ok year to date because it has less advertising exposure, names like viacom and news corp. or radio names that are beaten down. the reason they’re beaten down is we’re uncertain about the economy, whether it will come back and if so, how quickly. time warner doesn’t have that exposure with publishing and a.o.l. and cable operations. but if you get a recovering economy, the stock will lag without that boost.
>> by every indication we do have a recovering economy, but do we have recovering ad spending? and it’s a big year for tv stations with the olympics and the election.
>> absolutely right. the olympics always firm up pricing about that time and we see pacing numbers that respect that, especially with the halo effect. presidential spending is huge. we have companies with a large presence in the swing and battleground states and we’re bullish on those stocks, as well.
>> the overnight ratings for the big three broadcast networks were pretty weak. a rerun of “”c.s.i.” miami” doubled what they dook―took at cbs for the convention coverage.
>> that’s an important thing for me as as a media investor, we have a tight election and they have to keep spending and contributions keep rolling in from the deep pockets. we want a lot of spending on the battleground states. that spending will happen on nbc, cbs and abc. we’ll look for good numbers in the third and fourth quarter with those owners.
>> angela kohler, appreciate you coming on. as we said, consumer confidence rose rose more than expected, almost to a two-year high. we’ll look at the double c of the economic world, consumer confidence.
