November 12, 2012
3 Takeaways From MSO 3Q Earnings
Cable operators wrapped up reporting their third-quarter financials last week. Buried in the numbers and analyst calls were some signs of what’s ahead for the industry—good and bad.
>> Housing formation. No big deal? Housing starts are huge for MVPDs because they’re such a sub growth driver. Wall Street got excited as starts surged 15 percent in September to the highest level in four years. That’s got to signal some big gains for cable operators, right? Eh, not really. Comcast Cable President/CEO Neil Smit described housing as neither a “headwind nor a tailwind,” with “slight” improvements in some markets, but nothing unusual. Comcast CFO Michael Angelakis expanded on housing at an investor conference, saying, “The peak, where we are today, at least what’s being reported, is about a third of where the peak was in terms of housing formation,” he said. “I still think that what we’re reading in the newspaper is a bit of a disconnect in terms of what we’re feeling from housing formation.” Normalized housing levels eventually will yield a larger pool of potential customers but, for now, 3Q12 subscriber growth was essentially indistinguishable from zero for the second year, according to Bernstein Research.
>> Hurricane Sandy’s impact will be felt. Cablevision likely will see the biggest impact from Sandy, with some homes in its footprint completely gone. In 2011, Cablevision had roughly $16 million in impact from Hurricane Irene, and CFO Gregg Seibert said this storm would have a “substantially larger impact;” most of it should be recognized in 4Q12. Verizon also said it expects FiOS uptake to be slower than expected next quarter because of Sandy. Time Warner Cable also expects potential impact the storm, but CFO Irene Esteves said the company doesn’t expect it to be significant. Comcast said any monetary impact will be minimal — most likely in the form of some additional opex and capex in 4Q12 and 1Q13.
>> Business services continue to be seen as a real driver. The business-services segment contributed more than half of Time Warner Cable’s 3Q12 organic revenue growth. As cable gets its foot in the commercial door, look for it to try nudge that door wide open. Nearly 60 percent of TWC’s business customers are single play (usually broadband), and the MSO wants to upsell those customers with cloud-based services, making the pitch easier. Charter’s business services grew revenue by more than 20 percent YOY for the sixth consecutive quarter. During its earnings call, Comcast identified business services as a priority, noting it has been growing at a 34-percent clip. Small business makes up about 85 percent of Comcast’s commercial-service revenue, with the mid-sized market accounting for the other 15 percent. On the Wi-Fi front, Comcast is establishing small business hot spots.
— Amy Maclean, CableFAX