Time Inc. shares fell, marring the first day of trading after a spinoff from Time Warner Inc. (TWX:US), on concern that the company’s singular focus on magazines will hinder growth prospects as demand for subscriptions diminishes.
The shares, using the ticker symbol TIME, sank 3.6 percent to $22.63 at 12:46 p.m. in New York, where the company is based. Time Warner, which owns the Warner Bros. movie studio and cable networks such as HBO and CNN, rose 1.3 percent $69.02.
With no other significant source of revenue to make up for declines in advertising and circulation, Time Inc. is more exposed to the magazine industry’s struggles than rivals such as Meredith Corp., which also owns TV stations. The spinoff is letting Time Warner shareholders sell off their newly inherited shares of Time Inc., according to Joe Cornell, a media analyst with Spin-Off Advisors. Television and entertainment companies are generally valued more highly than print-media businesses, he said.
“Oftentimes there’s a knee-jerk reaction so there will be a meaningful amount of sellers,” he said. Time Inc. will probably trade lower for anywhere from a few days to a couple of months, he said. “It’ll just take time.”
Time Warner, which is listed in the Standard & Poor’s 500 Index, attracts investors interested in companies with bigger market value. Time Inc., which isn’t in the S&P 500, has an equity value is $2.5 billion, compared with Time Warner’s $60.9 billion.
By striking out on its own, Time Inc. will have to rely solely on the popularity of its titles, such as Sports Illustrated or People. Other periodical publishers such as Meredith and News Corp. have the help of assets such as a TV station or a book unit to shore up their still-falling advertising and circulation revenue.
“The good news is that Time has massive scale and audience reach, to go along with a solid reputation and brand recognition,” said Marci Ryvicker, an analyst at Wells Fargo & Co. in New York, in a research note. “To take advantage of these strengths, management plans to invest in new technologies and talent that should help complement its existing brands, and allow Time to find additional streams of revenue.”
The changes will take time to implement, said Ryvicker, who has the equivalent of a buy rating on the stock and values the shares at $27 to $29.
Time Inc. Chief Executive Officer Joe Ripp has cut staff and is investing in online businesses to build around the company’s well-known magazine brands. The publisher had free cash flow of $384 million last year, and could use similar funds this year for possible acquisitions or other investments.
Time Inc. is also looking for areas in which it could further cut costs, including staffing, according to people familiar with its plans. They asked not to be named because the strategy is confidential. Last year, the company slashed 500 jobs, or about 6 percent of its workforce, and more could come.
Advertising revenue fell 6 percent to $1.8 billion in 2013, compared with two years earlier, while newsstand and subscription sales plummeted 11 percent to $1.1 billion.
The company expects another drop in sales this year by as much as 5 percent, excluding the magazines it acquired from American Express Co. in September. It’ll also have to make payments on $1.4 billion in debt it raised for the purposes of the spinoff. About $590 million of that amount will be used to fund a one-time dividend payment to Time Warner shareholders.
“The spinoff of Time Inc. completes the process we began several years ago to position Time Warner as the world’s leading video content company,” Time Warner CEO Jeff Bewkes said today in a statement. “The spinoff gives Time Warner even more focus as we continue to deliver on this strategy.”
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