TWC 3Q: Shares Tumble Following Video Losses, Political Ads a Bright Spot

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Time Warner Cable‘s 3Q results failed to impress Wall Street on some fronts, with shares closing down 6% Mon. While Comcast is making strides in video, the 2nd largest cable provider continues to struggle, posting a net loss of 140K. Broadband additions of 98K were short of the 111K consensus. "We’ve always cautioned that misses or beats of this magnitude—we’re talking about a few thousand subscribers here and there on a base of 15 million customer relationships—are statistically irrelevant. True enough. But the pattern is not. TWC has consistently under-delivered, even if only by a hair. It matters more with the stock hovering near $100 per share," Bernstein Research said. Similarly, Wells Fargo Securities called the results "somewhat messy," though analysts acknowledged it had a tough set up coming into the quarter after Comcast’s strong results. What were TWC’s strengths? Political advertising, hardly a shocker given its strong foothold in OH and WI. Last week, TWC hit $1bln in sales for the year, a record. Political accounted for almost half of TWC’s 22% ad growth, but even without it, advertising was up 12% thanks to the Insight acquisition and a strong automotive category. Marcus said political advertising this year has totaled $54mln through Sept 30, with 50-60% of total annual political spend expected to come in 4Q. In the upcoming category, TWC plans to increase its standard tier downstream speeds by 50% to as much as 15Mbps in the next 60 days. It’s also ramping up WiFi build-outs, with more than 8K hotspots (most in L.A.) currently. Execs say it’s positively impacting churn, though they said usage hasn’t been great in this early stage. As for the Verizon FiOS marketing partnership, Marcus said TWC is still in the single-digit thousands in terms of PSUs sold in Verizon Wireless stores, but "we feel very positive about the relationship." At the end of the month, the retail partnership will be fully automated, meaning a Verizon Wireless rep will be able to enter an order and have it go directly to TWC’s billing system. Marcus sees that move away from manual entry facilitating more sales. Also on the horizon is more usage-based price offerings (remember, it’s optional with TWC). Dubbed Internet Essentials, the model is available now in TX, the Carolinas and the Midwest. NYC and the Northeast should be joining the party in the next month or so, and Marcus predicts the entire footprint will have it as an option. The cable modem rental fee that’s caused some bad press as of late didn’t sound like a concern, with Marcus calling the reaction predicable and saying roughly 3% of customers are buying a modem as opposed to renting from TWC. Hurricane Sandy has had an impact, but the company doesn’t expect it to be significant. For the Q, revenue rose 9% YoY to $5.36bln. TWC posted a net profit of $808mln ($2.60/share) from $356mln a year ago. Without one-time items, such as gains from the SpectrumCo and Clearwire sales, EPS was $1.41 or $438mln.

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