“HBO GO” is taking on new meaning inside Time Warner as the media giant contemplates a possible defense against 21st Century Fox.
The idea being bandied about is an initial public offering of HBO — billed as “the world’s most successful pay-TV service” — in order to showcase the value embedded in that single Time Warner division.
HBO is considered the crown jewel of the company with watercooler hits like “Game of Thrones” and “Girls.” The HBO GO streaming service is available to the pay-TV network’s subscribers.
This doesn’t mean HBO would actually GO via an IPO, according to sources familiar with Time Warner’s thinking. It means, rather, that a valuation of HBO would invite comparisons to video-streaming service Netflix, which sees itself as the new HBO and isn’t above poking fun at its more established rival.
It doesn’t hurt, of course, that Wall Street is in another of its Netflix-mania phases. Stock of the self-styled Internet television network closed Wednesday at $427.90 per share, up 18 percent for the year.
More relevant here is how the market values Netflix in relation to its Ebitda, or earnings before interest, taxes, depreciation and amortization.
It turns out Netflix’s enterprise value, which includes outstanding debt, is 60.3 times the $416 million in Ebitda that the company reported for its trailing 12 months.
Slap that same multiple on HBO’s Ebitda for the most recent year — namely, $1.9 billion — and the comparable value for Time Warner’s most coveted division is pushing $115 billion.
That’s even greater than the $93 billion the market accords Time Warner in its entirety.
What’s more, because HBO owns so much of the content it broadcasts, it’s arguably worth much more than a Netflix that leases almost all of its content and only recently started amassing a video library of its own.
Small wonder, then, sources believe Time Warner will soon take its “HBO GO” case to its shareholders.
Some even expect it to serve as the linchpin in Time Warner’s defense against Fox, which initially offered $80 billion for a company whose lead division is theoretically worth 44 percent more than Fox’s opening bid.
Time Warner’s board took its first step toward warding off a takeover by eliminating a provision in its bylaws that lets shareholders call special meetings.
Still, as convenient as it is to trot out the “HBO GO” argument now, insiders report the idea was being mulled even before Fox started rattling Time Warner’s cage.
“It was to be a 2015 event,” a source said of the gambit designed to unlock HBO’s value regardless of whether the entire company was in play.
Part of its beauty, the same source explained, is that an HBO IPO of less than 20 percent of the division would allow parent-company Time Warner to continue consolidating HBO’s robust results with its own financials.
Yet the market’s appreciation for HBO — as well as the value it adds to all of Time Warner — would be highlighted in the price of HBO shares released to the public.
A Time Warner spokesman declined to comment.