Cable Stages A Comeback
By: Mike Farrell, Multichannel News
The first-quarter earnings season kicked off last week with the two largest U.S. cable operators — Time Warner Cable and Comcast — reporting stronger than expected results, providing a needed lift to the sector.
Comcast, the nation's largest cable operator, reported free cash flow of $1.4 billion in the first quarter, a 95% increase, even as it lost 78,000 basic customers, which beat consensus estimates by more than half.
Time Warner Cable blew through most analysts' estimates for the first quarter and stunned the rest by actually showing basic subscriber growth, adding 36,000 basic video customers in the period.
The results helped lift the entire sector. Cable stocks rose 13% between April 28 and April 30, led by an 18.3% ($4.98 per share) increase at Time Warner Cable alone.
Most analysts had expected TWC to lose basic video customers in the first quarter — the consensus expectation was a loss of 77,000 subscribers. While the most recent increase fell short of the 55,000 basic additions in the first quarter of last year and advanced services growth slowed in the most recent period, it well outpaced estimates.
“That will be taken as an enormously encouraging, and reassuring, sign,” wrote Sanford Bernstein cable and satellite analyst Craig Moffett in a research note, adding that the growth was especially noteworthy given the economic climate and growing fears of “cord cutters,” or people who have severed the video relationship with their cable operator and watch programming for free online.
On a conference call with analysts, Time Warner Cable chairman and CEO Glenn Britt said the basic customer growth was mainly tied to the digital transition, which began in part on Feb. 17. Britt added that the company could see another bump in basic subscribers as the transition winds down in June.
The switch to DTV accounted for about 80,000 gross additions and could bring in about the same in the second quarter, said chief operating officer Landel Hobbs. About one-third of those customers also took an additional service, he added.
Time Warner Cable beat consensus estimates on other customer metrics, adding 121,000 digital video customers in the period (beating consensus of 100,000 adds) and 174,000 phone customers, ahead of the 143,000 estimate. High-speed data additions at 225,000 were well in front of consensus expectations of 147,000 additions.
In his report, Moffett said that TWC's show of strength in broadband additions should squelch fears of a telco rebound in market share. Both Verizon Communications and AT&T reported their best quarters ever in terms of video-customer growth — Verizon gained 299,000 video subscribers in the first quarter and AT&T added 284,000 video subscribers.
Financial metrics were also strong — revenue increased 4.9% to $4.4 billion and cash flow rose 7.5% to $1.5 billion. Chief financial officer Robert Marcus said that the company is on track to meet its full-year revenue and cash-flow growth guidance.
Comcast's improved subscriber losses and strong free-cash-flow growth kept the momentum going. Revenue rose 5.3% to $8.8 billion at the nation's largest cable operator and operating cash flow rose 8% to $3.4 billion.
On a conference call with analysts, chief operating officer Steve Burke said that the digital transition helped ease basic subscriber losses for the quarter, but unlike Time Warner Cable, did not quantify how many subscribers signed on as a direct result.
However, like TWC which said that subscriber growth was strongest during the first few months of the quarter, Comcast said that the past two months have been slower.
“March and April were tougher than January and February,” Burke said.
Time Warner Cable and Comcast's strong Q1 results helped boost stock prices across the sector.