Wunderlich Securities' Matthew Harrigan Weighs in on Time Warner's Q2 Earnings Results

Benzinga Radio had the opportunity to talk with Wunderlich Securities' media analyst Matthew Harrigan about Time Warner's TWX second quarter earnings results, which were released on Wednesday prior to the opening bell. The company reported non-GAAP earnings per share of $0.60 which compared to Wall Street consensus EPS estimates of $0.56. Revenues were up 10% to $7.03 billion, which also exceeded Wall Street expectations of $6.81 billion. Despite the upbeat quarter, shares fell 1.26% during the trading day on very heavy volume.
Harrigan told Benzinga Radio that the negative reaction was likely a result of a sequential decline in network TV advertising versus Q1, but that he remains positive on the stock, reiterating his Buy rating and $42 price target. According to Harrigan, the quarter was driven by the success of the Hangover Part 2 as well as success in the video game space. In addition, he sees the Tablet ad space as an exciting growth story.
Harrigan offered praise for Time Warner CEO Jeff Bewkes and said that the company is doing a good job of returning capital to shareholders through its buyback program. Looking ahead, Time Warner is likely to be dependent on the success (or failure) of movies such as The Dark Knight Rises and Barnabas, featuring Johnny Depp. While Harrigan remains very positive on TWX shares, he said that one headwind for the company would be a steep fall off in the economy.
Advertising continues to be strong at TIme Warner, as advertisers realize that there are price efficiencies with network and cable TV that just aren't available via the internet. In other words, the TV advertising space is hanging tough, despite the rapid growth in internet advertising.
Harrigan also noted that advertising is becoming more interactive and this is a huge potential catalyst for Time Warner's business going ahead. Harrigan said that foreign box office receipts are a strong growth area for Time Warner, noting that Russia has been "exceptionally strong." Generally, foreign markets are an incremental growth area for the large studios.