Analyzing Time Warner’s Valuation Metrics



Valuation metrics

In this final part of our series, we’ll look at some key metrics investors can use to compare the values of media companies. We’ll specifically look at media valuation multiples, which help with the valuation of conglomerates.

Some of the usual valuation multiples for companies are PE (price-to-earnings), EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), PCF (price-to-cash-flow) ratio, and PFCF (price-to-free-cash-flow) ratio.

The price-based multiples take into account value from a shareholder’s perspective. The EV-based multiples help investors understand the value of the company from capital holders’ point of view. These are forward multiples based on the expected values of the denominator after a year.

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Time Warner’s valuation compared to peers

As the above graph shows, Time Warner (TWX) has a forward PE multiple of 12.9x, which is high among its peers. Of these peers, 21st Century Fox (FOXA), Viacom (VIAB), and CBS (CBS) have forward PE ratios of 13.1x, 9.4x, and 12.5x, respectively. Only The Walt Disney Company (DIS) has a higher PE multiple at 15.8x.

Time Warner has a forward EV-to-EBITDA multiple of 9.5x, while Viacom has the lowest forward EV-to-EBITDA among its peers of 8.3x.

Time Warner’s value proposition

Time Warner is pursuing original programming for its Turner division, which bodes well for Time Warner in the long term. The company is also pursuing a content licensing strategy in international markets, instead of owning a network, that could reap rich rewards for the company in the long term.

The company’s viewership is increasing for its digital platforms, including HBO Now, HBO Go, and HBO On Demand, which indicates that it’s set to corner a significant share of the online streaming market. It plans to launch its online subscription service, FilmStruck, and another service later this year.


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