Technology Investing: Time your entry into Time Warner

Posted February 12, 2008

“Bewkes plan to excise AOL’s unprofitable ISP could save Time Warner from further embarrassment over the five-year-old decision and make TMX a reliable stock again.” — Stephanie Grimmett

by Stephanie Grimmett

Baltimore – (TFN ): Time Warner (TWX: NYSE) shareholders breathed a sigh of relief this week when Jeffrey Bewkes made his first public address as CEO and immediately announced big changes for the flagging company.

The former HBO chief said he was splitting AOL’s Internet-access business, which is currently crashing and burning, and the subsidiary’s thriving online advertising segment.

AOL has lost dial-up Internet subscribers to high-speed competitors by the millions, and the Internet service provider’s profits went down the drain with its subscriber base.

But the company’s Internet portal and advertising portion saw an 18% increase in revenue in the last year. And instead of selling off all of the company to a competitor, Bewkes has decided to cut AOL in half, after which, analysts expect him to sell the unprofitable Internet service side and keep the portal portion for itself.

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AOL has been a thorn in Time Warner’s side since the ISP (Internet service provider) announced it was merging with Time Warner in 2000. That infamous merger, which created AOL Time Warner, heralded the end of the technology boom and the near destruction of the world’s largest entertainment company at its birth.

And we all know the history that turned AOL Time Warner back into just Time Warner: In 2002, AOL Time Warner reported a $99 billion loss, at the time the largest loss in the history of, well, public companies, due to AOL’s value collapse and a drop in the company’s profits. The aftermath ran then-CEO Steve Case out of the company and knocked AOL from its name.

Since then, Time Warner has been holding onto AOL in a desperate attempt to transform the old ISP model into a new profitable venture with moderate success so far.

But Bewkes plan to excise AOL’s unprofitable ISP could save Time Warner from further embarrassment over the five-year-old decision and make TMX a reliable stock again.

Bewkes also announced that New Line Cinema, the production house behind The Lord of the Rings trilogy and, more recently, The Golden Compass and Hairspray, will be absorbed into the larger Warner Bros.

And Bewkes plans to preside over a “change of ownership” for Time Warner’s cable division, which already operates on a separate balance sheet from the rest of the company and has it’s own stock listing under Time Warner Cable (TWC: NYSE).

TMX jumped 10% on the news, but I’m still waiting a couple of quarters before I’m comfortable recommending the stock again. If you’re willing to wade through the ups and downs of a reconstruction, take the chance and get back into the stock.

If you’re like me, though, you may want to give Bewkes the chance to clean out some rafters before you put your money back into Time Warner. Either way, it looks like things are turning around at TMX.

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