Time Inc.

Overview

Time Inc. was co-founded in 1922 by Henry Luce and Briton Hadden. Over the past 93 years, Time Inc. has evolved into one of the top media companies with more than 50 global offices and 90 brands including Southern Living, Sports Illustrated, and People. Its magazines are published in the United States as well as internationally with the United Kingdom being one of its largest markets.

One of the most notable points in Time Inc.’s history was its merger with Time Warner in 1990. However, after 24 years together, the two split once again in 2014 to allow the companies to focus on their own objectives and separate business markets— Time Warner on television and film and Time Inc. on print. Ever since, Time Inc. has been an independent and publicly-traded company.

One of the key leaders during this split who is now involved in Time Inc.’s move towards digital media was Joseph A. Ripp. Ripp was appointed as chairman and chief executive officer just a year before the two companies parted ways. Ripp first started as assistant comptroller in 1985, and is now the head of a 12-member leadership team.

With advertising and circulation as its two main sources of revenue, Time Inc. has experienced overall decline in its revenues over the past few years as the market has become more and more digitally centered. Keeping this in mind in addition to several other key issues as well as Time Inc.’s audience and financial performance, it is of great question whether or not it is wise to invest in the company.

Audience + Customers

As mentioned, Time Inc. has the capability of reaching a large and diverse audience through each of its 90 publications, 25 of which are considered premier publications. Its total readership consists of 130 million people across multiple platforms with each publication attracting a niche audience. Not only does this allow Time Inc. to target its readers’ interests more precisely, but it also allows the company to sell advertising space to other companies with more focused demographics.

Despite overall decline in print readership, advertising to Time Inc.’s print audience is still more lucrative than its digital counterpart. In an effort to more effectively advertise on digital platforms, Time Inc. implemented what is known as “programmatic advertising” in February 2015. Programmatic advertising, in short, is the use of software to purchase ads as opposed to the more traditional methods of human negotiations and manual insertion orders.

This expansion to programmatic advertising came about in response to Time Inc.’s website attracting a larger audience than its print magazines in November 2014. In the United States alone, 99.4 million unique visitors visited Time Inc.’s mobile and desktop platforms during this time. Furthermore, programmatic advertising has allowed media planners to purchase segments from Time Inc. across 18 major Time Inc. brands and, in doing so, reach audiences ranging between 15 million to 46 million readers within each segment.

Graph made by Group 2 member: Drew Beveridge

Key Issues

Digital Advertising

One of the biggest issues Time Inc. is battling is trying to become a player in the digital game. Print advertising is still Time Inc.’s largest percentage of advertising dollars, despite the fact that print advertising as a whole is in a steady decline. Only about 20 percent of its total advertising dollars are brought in through digital advertising, which is simply not enough to sustain the media company in the long term.

Audience Gap

One of the biggest demographics missing among Time Inc.’s audience is millennial women. In an effort to win them over, Time Inc. has recently purchased the Jane Pratt-led websites xoJane and xoVane from Say Media. This is the second deal that is directly aimed at creating more content for millennial women with the hope that they will become a lasting audience.

Restructuring

Although the split with Time Warner in 2013 has arguably benefited both companies in allowing them to independently pursue their objectives, it has also come at some cost. To start, Time Warner not only left Time Inc. with $1.3 billion in debt, but they also required Time Inc. to contribute $1.4 billion towards acquiring International Publishing Corporation, the British magazine-publishing division of Time Inc., as well as to furnish a dividend to shareholders. Furthermore, Time Warner kept CNNMoney, a profitable website, as well as Bleacher Report, a fast-growing online sports destination, after the split, both of which would be beneficial and big names to have associated with the company. Finally, the restructuring left many of the Time Inc. journalists with feelings of betrayal.

Financial Performance

The net income for Time Inc. has declined over the last three years. Advertising for print has decreased by almost $100 million, and though digital advertising has seen an increase, declining traditional advertising revenue has brought down the total ad revenue from $1.92 billion in 2011 to $1.77 billion in 2014. Circulation revenue has also fallen over the last four years; aside from a brief period in 2013 when revenues defined as “other revenue” made $418 million, revenue quickly fell $7 million to $411 million the next year. Consequently, total revenue has fallen from year to year, from $3.67 billion in 2011 to $3.28 billion by 2014.

Graph made by Group 2 members Steven Farmer and Joseph Reisigl

Production costs have also fallen, however. From 2012 to 2014, production costs have dropped from $795 million in 2012 to $742 million in 2014. Likewise, editorial costs have also fallen, from $467 million in 2012 to $435 million in 2014. However, other costs have risen from $82 million in 2012 to $104 million in 2014. Fortunately, overall costs of revenue have fallen over the past four years, from $1.39 billion in 2011, to $1.29 billion in 2014. Despite this, overall gross profit has fallen over the last four years to $1.98 billion.

Graph made by Group 2 members Steven Farmer and Joseph Reisigl

As a whole, net income has dropped to $87 million from a previous high of $368 million in 2011. The weighted averages of basic and diluted shares have increased marginally over the last four years, but basic net income has also dropped. The data for cash dividends is available, but the number available for 2014 is $0.19.

Graph made by Group 2 members Steven Farmer and Joseph Reisigl

Balance sheets for Time Inc. show that the company is collecting money owed to it very regularly, though that amount is decreasing over the years. Nevertheless, total current assets have risen to $1.25 billion in 2014, though total long-term assets and total assets have fluctuated over the past four years.

Graph made by Group 2 members Steven Farmer and Joseph Reisigl

However, liabilities have also seen a dramatic increase, from $1.7 billion in 2011 to $3 billion in 2014. Total liabilities and equity have fluctuated from year to year, though on the whole they have decreased to a current $5.9 billion.

Graph made by Group 2 members Steven Farmer and Joseph Reisigl
Graph made by Group 2 members Steven Farmer and Joseph Reisigl

Cash from operations has fallen substantially in the last four years from $474 million in 2011 to $281 million in 2014. Since this decrease, Time Inc. has increased its cash on hand from $46 million in 2013 to $519 million in 2014 after massive borrowing of $1.37 billion in 2014.

Graph made by Group 2 members Steven Farmer and Joseph Reisigl
Excel Spreadsheet made by Group 2 members Steven Farmer and Joseph Reisigl

We have created an excel sheet that includes the income statement, balance sheet, cash flow statement, and graphs for other important financial numbers. To view and interact with the multiple pages of this excel sheet, please click here.

Investment Recommendation

We learned in class that, “If a company isn’t growing, it’s dying.”

Time Inc.’s CEO Joseph A. Ripp agrees. According to a Washington Post article from this past July, he said, “If we don’t find new revenue streams, if we don’t find new ways of distributing our content on multiple platforms, it’s a slow and steady death.”

Ever since Ripp took his position as CEO in 2013, he has worked toward solving Time Inc.’s greatest problem: digital advertising. Last year alone, digital ads only accounted for 9 percent of Time Inc.’s total revenue compared to 45 percent from print ads. When compared to other companies, digital ads, on average, accounted for 17 percent of Time Inc.’s ad revenue and 66 percent of Forbes’. The world’s largest advertiser, Proctor & Gamble Co., even cut its spending on Time Inc. by one-third in 2014.

Time Inc.’s stock has remained relatively flat as well since it became a publicly traded company after its split with Time Warner in 2014. It currently trades at a lower price to other competing companies such as Meredith, a company that owns and operates 17 television stations and magazines such as Family Circle and Better Homes and Gardens.

Even with a strong push towards targeted websites, it might be too late for Time Inc. to compete with other media companies that have moved into the digital market in recent years. As The Washington Post put it in the title of its article, “The Clock is Ticking for Time Inc.’s CEO.” If Time Inc. is unable to balance its revenue from print advertising and digital advertising soon, it might be the end of Time Inc.

Thus, because Time Inc. is not growing, is too far behind its competitors in making a digital presence and because its advertising revenue numbers are so skewed, we would not recommend investing in Time Inc.

Sources

http://d1lge852tjjqow.cloudfront.net/CIK-0001591517/dd332053-562d-4dba-8665-8d2bb121f029.pdf

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.