Shares Drop at TWC as Q3 Results Miss Expectations
Time Warner Cable reported Q3 results that did not live up to Wall Street expectations Monday; its shares dropped 6.4 percent, closing at $91.93. The company lost about 140,000 basic video subscribers and added 85,000 broadband subscribers, it said. Analysts expected better, several wrote in notes to investors. “For the better part of a year, Time Warner Cable has played second fiddle to Comcast,” Bernstein Research analyst Craig Moffett wrote in a note to investors. “Each quarter, TWC’s growth metrics (especially in video) have been sloppy while Comcast’s have been tight,” he said. Investors had overlooked that in recent months as cable stocks rallied, he said. But “all of TWC’s numbers are just a touch light, and they suffer from the inevitable comparison to Comcast,” he said.
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TWC is taking steps to add and keep more video and broadband customers, Chief Operating Officer Robert Marcus told analysts during a teleconference Monday. For its broadband product, the company is introducing lower-priced usage-based pricing plans that will help it target the lower segment of the market, and on the high end it is continuing to increase speeds, offer unlimited consumption and other features, he said. “Where we think we can do a better job is providing additional products at the lower end for economy customers,” he said. “We need to ensure no customers are seeking the cheap price offered by DSL because we don’t have something for them."
TWC has introduced its usage-based pricing broadband plan, which it markets as “Internet Essentials” in the Carolinas, Texas and the Midwest, Marcus said. “By year-end I think we'll be 100 percent across the footprint” with that product, he said. So far, the product hasn’t taken off with customers, he said. But it establishes two important principles going forward, he said: “One, that usage and price equate to each other, and the other is that we give customers who use less a choice to take less,” he said. Comcast also has a broadband product for lower-income subscribers called Internet Essentials.
Introducing out-of-home Wi-Fi service for broadband subscribers has led to a noticeable reduction in churn, CEO Glenn Britt said. “It’s very early days and the usage isn’t great yet but we're seeing a very promising reduction in churn,” he said. “Promising enough that we're encouraged to keep going” with TWC’s Wi-Fi buildout, he said.
TWC doesn’t think it needs to acquire a CLEC in order to sell more telecom services to commercial customers, even though the FCC recently made it easier for cable operators and CLECs to combine (CD Sept 18 p4), Marcus said. “We have in-house what we need to move meaningfully up market from where we are,” he said. Most of its commercial revenue comes from smaller businesses, he said. Serving larger national and multinational companies is a challenge given TWC’s regional footprint, he said. It can partner with other companies to serve larger customers, but the profit margins are not the same, he said. “It’s something we can do,” he said.
Q3 sales from its residential businesses increased 7 percent from a year earlier to $4.5 billion, the company said. Sales at its commercial businesses increased 27.4 percent to $493 million. Ad sales gained 22 percent to $264 million, primarily on higher political ad sales, it said. Overall, TWC sales increased 9.2 percent from a year earlier to $5.3 billion. Net income increased 127 percent to $808 million, largely on the proceeds of the sale of its stake in SpectrumCo to Verizon Wireless.