In this part of the series, we’ll look at some key metrics investors can use to compare values of media companies. We’ll specifically look at media valuation multiples, which are helpful in the valuation of conglomerates.
The most common 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. Remember, price-based multiples take into account the value from a shareholder’s perspective, while EV-based multiples help investors understand the value of a company from capital holders’ points of view. The latter metrics are forward multiples based on the expected values of the denominator after a year.
Time Warner’s valuation compared to peers
As the above graph shows, Time Warner (TWX) has a forward PE multiple of 14.6x, which is high among its peers. Of these peers, Twenty-First Century Fox (FOXA), Viacom (VIAB), and CBS (CBS) have forward PE ratios of 12.3x, 9.3x, and 12.8x, respectively. Only The Walt Disney company (DIS) has a higher PE multiple at 15.5x.
Time Warner has a forward EV-to-EBITDA multiple of 10.2x, while Viacom has the lowest forward EV-to-EBITDA at 8.5x.
Time Warner’s value proposition
Time Warner is pursuing original programming for its Turner division, which bodes well for the parent company in the long term. The company is also pursuing a content licensing strategy in international markets instead of owning a network. This approach could reap rich rewards in the long term.
Time Warner’s viewership is increasing for its digital platforms, including HBO Now, HBO Go, and HBO On Demand. This trend indicates that the company is poised to corner a significant share of the online streaming market.