Time Warner Stock Tanks as Company Eyes Lower 2016 Earnings Target, Aggressive Content Spending

Jeff Bewkes Horizontal - H 2014
AP Images

Jeff Bewkes Horizontal - H 2014

Management says Turner subscribers are down more than expected, and CEO Jeff Bewkes says the company is considering keeping digital rights to its TV shows longer.

Time Warner's stock tanked on Wednesday after the company said it expects that 2016 earnings per share would come in below its previous target, that Turner subscriber trends have come in below expectations this year and that the company may license less TV content to digital platforms or do so later.

CEO Jeff Bewkes said the company would spend aggressively on new content and other things and look to maximize its profitability and the value of its content for the long-term rather than near-term. "We have identified additional investments," he said, adding that they would "weigh on earnings."

As of 11:30 a.m. ET, TW's stock was down 8.5 percent at $70.70. Other sector stocks also fell. 21st Century Fox's stock at the same time was down 5.7 percent, Viacom's stock was down 5.6 percent and Discovery's 4.3 percent, while Disney shares were down 2.3 percent.

While the company isn't done yet with its budgeting, meaning final guidance will come later, Bewkes said some changes suggest adjusted earnings per share of around $5.25 next year, down from a consensus figure of $5.60 per share and a previous company target of around $6. Currency fluctuations will provide a hit of about 50 cents per share just like this year, he said. Higher spending on content creation and delivery could amount to "the hundreds of millions of dollars," management said.

The company earlier had reaffirmed 2015 guidance for earnings of $4.60-$4.70 per share.

Bewkes also mentioned "aggressive" content investment plans in 2016 and beyond that he said the company hopes will also create content that will resonate on new platforms. He cited HBO's deal with Jon Stewart, among others. Plus, the company's Turner unit is looking at reducing ad loads, just like its truTV network recently announced it would do, Bewkes said.

CFO Howard Averill cited another factor affecting the company's outlook, saying Turner's channels have seen U.S. subscribers decline more than previously expected this year, namely by about 1 percent beyond targets. That trend would likely continue in 2016, the company said.

Bewkes said in the changing media landscape, the focus was on long-term competitive positions and growth rather than near-term profitability of the company. He said that would mean maximizing the long-term value of content and pushing "on the accelerator."

In that context, Bewkes also said that the company was considering keeping its digital rights longer and delaying or foregoing SVOD licensing, which would affect the likes of Netflix and Amazon, to bring licensing windows more in line with traditional syndication.

Bewkes and his team also vowed investment in digital infrastructure to modernize people's viewing experience, quipping that at times that feels like it was "stuck in the Bronze Age."