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Time Warner Call: AOL Split On Track, But Options Open On Sale Of Access; Prudent Aquisitions

imageTime Warner (NYSE: TWX) is making good progress, says CEO Jeff Bewkes, on curating the proper portfolio of assets. Cable is obviously on track and the deal to spin it fully off should be done by the end of the year. On AOL: “We’ve now made key financial and strategic decisions that will enable us to operate the access and audience.” But it still sounds a tad murky: assets of the company has been divided into three categories: access, audience and something called shared services. (Eventually if they sell one or both of these units, you’d think they’d have to get rid of that shared services bucket, but we’ll see if that’s addressed further on the call). “Nonetheless,” says Bewkes: “We have the ability to do something strategic with either of these two businesses today.”Lots more, including Q&A, after the jump

AOL: Tracking behind expectations. “It continues to post strong usage growth… 60 percent growth in our content verticals. Our third party business continued to show significant volume growth.” Pullbacks in auto, financial services, telecom and travel. “We believe this performance is also due to the continuing affects of acquisition integration (as previously discussed).” The good news: “We’ve made substantial progress since then, particularly this month. Platform-A is now fully integrated (sales, marketing, engineering).” Benefits of these organizational changes will be realized in 2H.

Acquisitions: Sort of a standard answer: TWX will pursue prudent acquisitions, but only ones that provide a meaningful financial return, and one that’s superior to other uses of cash. Given the low share price, it will be difficult to find acquisitions, says Bewkes, that will be superior to just buying back stock. That being said, given all the financial changes the company is undergoing, buybacks are currently on pause. Following the big one-time dividend from TWC? Same. Prudent acquisitions if possible, but expect more cash returned to shareholders.

Q&A:

Plan for Access: Still no guarantee of an Access sale, says Bewkes: “We will assess all of the options… one that ought to be thought about, as a benchmark, against any kind of strategic change, would just be operating it as if the cash flow from that operation is superior to any deal we could get.” Basically: We’ll do whatever makes the most money.

DVD business: Still holding up. Retailers devoting more space to DVDs at the expense of music. We can outperform the industry.

AOL 2H: “Why the confidence in the second half of the year?” asks Pali’s Rich Greenfield. The non-answer from Bewkes: Various trends looking positive. Also, the company will grow in 2H by dint of weaker comparisons.

ROI of acquisitions: Also from Greenfield: Can you tell us the ROI of the various AOL acquisitions? Answer: not really. The ad deals have been about building up Platform A. With Bebo there are some synergies and strategies to be named later.

Day-and-date film release: “We have not seen cannibalization so far… I don’t think it’s right to think that margins are lower. They’re higher by rental obviously” Going to increase margins and profitability going to day and date. It will help the company (and the whole industry) fight piracy.

2 Responses to “Time Warner Call: AOL Split On Track, But Options Open On Sale Of Access; Prudent Aquisitions”

  1. The Compete number is misleading because AOL has been pushing a lot of it's content away from the AOL brand, and similarly away from the aol.com domain, which would directly impact overall uniques to "aol.com". So don't read too much into that number if looking at overall network growth.