Both operators beat Wall Street analysts’ profit estimates, and Charter added a net 12,000 residential video subs while TW Cable dropped only 7,000. The improved numbers come after cable giant Comcast this week reported a net loss of 48,000 video subs for Q3, versus a decline of 81,000 a year earlier.
The relatively strong results from the top MSOs on the TV front led analysts to wonder whether the cord-cutting worries that hammered media stocks over the summer were overblown.
“It’s time to change the narrative about cord cutting,” MoffettNathanson analyst Craig Moffett wrote in a note Thursday. Although the pay-TV industry is indeed in slow and steady decline, the results from Comcast, TW Cable and Charter show that “all three are now outperforming pay TV as a whole,” he wrote. “Cable is taking share.”
The rate of shrinkage in the pay-TV sector, expected to decline between 1 million and 2 million in 2015, is “already priced into (media) stocks,” Bernstein Research analyst Todd Juenger wrote in a note to clients. On the other hand, the subscriber counts don’t account for “cord-shavers,” customers who are trading down to cheaper TV packages. Video average revenue per subscriber decreased for both TW Cable and Charter in the quarter, Juenger pointed out.
“Media bulls will point to better than expected pay-TV sub count, combined with an expected slight improvement in Q3 TV advertising (which we think is mostly driven by an inventory squeeze),” Juenger wrote.
Charter’s $79 billion bid for Time Warner Cable, approved last month by the companies’ shareholders, is still pending regulatory approval. Charter swooped in with its bid after Comcast dropped its offer for TW Cable after regulatory pushback.
There’s some investor uncertainty about whether the Charter-TW Cable deal will go through, with Time Warner Cable’s stock price 7% lower than Charter’s bid price. But “the evidence of a genuine turnaround at Time Warner Cable continues to build,” Moffett wrote in a note. That would decrease the chance of a competing bid for the cable operator from the likes of France’s Altice, which is acquiring Cablevision Systems.
On a conference call with Wall Street analysts Thursday, Charter CEO Tom Rutledge said the company had hoped to close the TW Cable/Bright House Networks acquisitions by year’s end but is now expecting it to happen in the first quarter of 2016. He said Charter has had no discussions yet about any potential concessions with regulators.
Rutledge credited Charter’s investment in improving its cable video offerings and customer service for the uptick in video subscribers, which the company expects to continue through the rest of the year. Rutledge cited Charter’s emphasis on employee training, in-house hiring of customer service reps and even new trucks and tools for technicians — “all of those thing are paying off (in the form of) better service and better products,” he said.
Over all, Time Warner Cable posted revenue of $5.92 billion, up 3.6% year over year, and net income declined 12% to $437 million, in part because of higher programming and employee costs. Adjusted earnings per share of $1.62 topped analyst consensus EPS estimates of $1.57, while sales came in just below Wall Street estimates of $5.96 billion.
TW Cable’s residential video net decline of 7,000, to hold steady at 10.77 million at the end of September, was the MSO’s best third-quarter showing in the segment since 2006. It also gained 232,000 residential broadband subs, also a nine-year high, and packed on 237,000 voice customers.
Charter reported $2.45 billion in revenue (up 7.2%) and swung to a $54 million profit versus a $53 million net loss in Q3 2014. Wall Street had expected a loss of 7 cents per share on revenue of $2.46 billion.
According to Charter, the year-over-year increase in Q3 2015 net income was driven by a $142 million tax benefit in the third quarter of 2015 versus a $59 million tax expense in year-earlier period, as well as higher income from operations offset by $163 million of interest expense related to the financing of Charter’s pending transactions with Time Warner Cable and Bright House Networks.
As of the end of September, Charter had 4.13 million consumer TV customers, up sequentially but down 1% from the year-earlier period. Charter netted 131,000 Internet and 37,000 voice residential subs, compared with 94,000 and 29,000 respectively during the third quarter of 2014.
Cynthia Littleton contributed to this report.