Will HBO Now Provide Growth For Time Warner?

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Citi issued a company update on Time Warner Inc TWX after recent estimations on the growth in subscribers for its premium service HBO. Citi reiterated its Buy rating for Time Warner and raised the price target from $89 to $97.

Analysts Jason Bazinet and Robert Koryl wrote, "In the US, we estimate ‘HBO Now' will generate ~4 million incremental subs. We expect ~60 percent of these subs to come from broadband homes that don't have a pay TV subscription. This assumes ‘HBO Now' can achieve ~30 percent penetration among broadband only households (akin to HBO's current penetration rate among pay TV households). In addition, we expect ~40 percent of ‘HBO Now' subs - about 1.4 million – to come from households that terminate their pay TV subscription.

"We rate Time Warner as a Buy. Time Warner should benefit from two trends: First, as the firm's cable networks enter a new renewal cycle, affiliate fees should accelerate. Second, we expect the Street to reward the firm with a higher P/E multiple since the new firm (made up of only Turner, HBO and Warner Bros) will have a higher growth rate."

Related Link: Netflix Vs. HBO Now Vs. Sling TV: Are They Competitive Or Complementary?

While Citi's analysis is based solely on the U.S. market, they point out that the HBO Now model can be expanded to other markets. Analysts believe this premium service warrants a higher valuation for HBO as it can now target a demographic that places a high value on watching their programs at their convenience. This strategy will help Time Warner remain competitive with on demand streaming video services and increase its market share in the cable industry.

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Posted In: Analyst ColorPrice TargetReiterationAnalyst RatingsCitiJason BazinetRobert Koryl
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