HBO recently released its HBO Go app for mobile devices and
reportedly had 1 million downloads in the first week of its launch.
The app works both for Apple's (
) devices as well as Android-based gadgets. This is yet another
move by Time Warner (
) aimed at preserving HBO's value. Below we take a quick look at
HBO's value and how the app launch could affect the company's
outlook. Time Warner competes with other media companies like
), News Corp (
), CBS (
) and Viacom (VIA).
HBO Represents One-Fifth of Time Warner's Value
We estimate that HBO constitutes about 20% of Time Warner's
stock value. This comes as a result of high
fee per subscriber
of a little over $7 per subscriber per month and high
gross profit margins
of over 53%. This more then offsets HBO's lower household
penetration compared to many other channels.
The premium nature of HBO makes it more susceptible to
subscription drops if alternative services like that provided by
Netflix (NFLX) appeal to more subscribers, who might no longer find
it worthwhile to continue paying for HBO. However, HBO prides
itself in its relatively new movie content, while Netflix still
does not offer much on its streaming service. But these factors
could shift in the future. While on one hand Time Warner might look
to make licensing deals with Netflix, it will certainly seek to
defend its more profitable channels like HBO. And HBO Go is a step
in that direction.
The service was first launched on the web but has since expanded
to mobile devices, a good move since distribution matters as much
as content. This increases customer convenience and encourages them
to maintain their HBO subscriptions.
Our price estimate for Time Warner stands at
, roughly in line with market price.
See our complete analysis for Time Warner's stock