The past 12 months have been rough for Time Warner Inc (NYSE:TWX) stock. Perhaps Hulu is just the thing to turn it around.
The media giant is buying a 10% stake in the streaming video service, Time Warner announced during its second-quarter earnings call before the bell this morning.
That means channels such as TBS, TNT, CNN, the Cartoon Network and Turner Classic Movies — all Time Warner properties — will not only make their shows available to stream on Hulu, but will also be available to watch live when Hulu launches a new live-streaming subscription service early next year.
It’s a smart move by Time Warner at a time when cable customers are cutting the cord by the millions in favor of cheaper online streaming services.
The loss of subscribers to its aforementioned television channels, plus HBO, has put a dent in the company’s top-line growth of late — Time Warner’s sales growth slipped to 2.8% last year, its slowest growth since 2012.
Image Change for TWX Stock?
This isn’t the company’s first foray into online streaming — it launched HBO Now, a stand-alone service that allows people to watch HBO shows online without needing a cable subscription, in April 2015. But the Hulu move shows that Time Warner is increasingly willing to change with the times, essentially making shows from all its channels available online.
Adaptability is a trait investors love, which is part of why TWX stock is up about 3% this morning. The other reason was the company’s strong second-quarter results: it earned $1.29 per share, well ahead of the $1.16 analysts were expecting and a 3.2% improvement from the same quarter a year ago. TWX also raised its full-year EPS guidance to a range of $5.35 to $5.45. The good earnings news was enough to offset a 5.4% year-over-year sales decline.
The sales decline is all the more reason why the Hulu deal was so necessary. We won’t know for a while if Hulu can help revitalize Time Warner’s sales.
In the meantime, it should help Time Warner stock in terms of how it’s perceived on Wall Street.
TWX: Short-Term Green Light, Long-Term Yellow Light
TWX stock has floundered since hitting an all-time high above $91 last July. It dipped as low as $60 this February, and although it has recovered some, it still hasn’t reached as high as $80 all year. This morning’s pre-market action helped the stock open as high as it’s been since last August.
From a fundamental and technical standpoint, there are two things TWX stock has going for it: even after this morning’s move, it still trades at less than 13 times forward earnings estimates; and the stock is now firmly above its 50- and 200-day moving averages. If it breaches $78 overhead resistance for the first time in a year, it could really take off.
That might happen by the end of the day, so if you’re a trader looking for a stock with short-term momentum, you should buy TWX now. Taking the longer-term view, it’s certainly encouraging that Time Warner is delving deeper into the world of streaming video content, but we won’t know Hulu’s impact on the company’s top-line growth for at least a few quarters.
Until that happens, I’d recommend either holding Time Warner stock if you already own shares, or taking out a very small position just in case this Hulu deal is just the game changer TWX needs.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
