Cablevision Q2 Results Miss Estimates as Investors Sell Stock
Cablevision shares dropped 13 percent Tuesday after the company reported Q2 results. The loss came despite a broader bounce-back among the major stock indices following Monday’s plunge. Analysts had expected better financial and operating results at Cablevision. “For years we have worried that Cablevision would become a victim of its own success,” Sanford Bernstein analyst Craig Moffett wrote investors. The company has among the highest penetration rates for its services and is significantly exposed to Verizon’s FiOS overbuild, he said. “And yet each quarter, their results proved surprisingly resilient, a function of best-in-class execution and best-in-class subscriber demographics. Until now.” Investors may have also expected a new plan to return capital to shareholders, which didn’t materialize, Wells Fargo’s Marci Ryvicker wrote.
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Analysts expected an order of magnitude fewer basic video subscriber losses than the 23,000 Cablevision posted. They expected the company to add about 23,000 broadband subscribers, when Cablevision added 5,000. Executives attributed the weak results to economic and competitive pressure as well as Cablevision’s own unique set of circumstances. About 70 percent of its residential customers buy all three products -- voice, video and broadband, said Chief Operating Officer Tom Rutledge. So the subscriber numbers “tend to move together,” he said.
Cablevision’s service area has seen few new homes built and has a high vacancy rate among those already there, Rutledge said. “That all hurts the business, but in the long run I expect we'll have a more normal economy,” and subscriber growth will return, he said. For now Cablevision, and the analysts who recommend investors buy its stock, are looking to new products to help the company increase revenue.
The biggest chance of success in a new product line is selling Cablevision’s products, particularly phone service, to businesses, Rutledge said. “We continue to have a big opportunity to grow the business universe and the actual opportunity there may be even greater … than it is in the video and residential voice business,” he said. “I think all businesses will continue to [buy] a wireline voice product for the foreseeable future."
New home video products such as its remote DVR service and smartphone, tablet and PC apps will help on the video side, Rutledge said. Cablevision’s interactive ad technology could help it take ad sales market share from other local TV outlets, he said. One product that’s not on the roadmap now: Home security. That’s a feature some other cable operators have been interested in adding, but Cablevision doesn’t “have a current business plan to exploit that as a new revenue opportunity,” Rutledge said. “To the extent that there’s an opportunity there, we can take advantage of it."
Among the new products Cablevision is preparing is an out-of-home streaming video service, Rutledge said. Cablevision is in active negotiations with programming networks for out-of-home rights to programming and it has already acquired some, he said. “We're putting those together now in packages and we'll be able to make those available to customers in the relatively near future."
Cablevision also defended its broadband service after an FCC-funded report found it to have the highest difference between its advertised and actual broadband speeds among major ISPs. “While the FCC test is accurate on some level, it’s misrepresented in terms of its implications to consumers,” Rutledge said. For instance, a DSL provider offering 750 kbps would come out looking better in that methodology than Cablevision’s much faster service, he said. “We continue to have a superior product to our competitors in the data business in the actual utilization and perception of the consumer.”