Charter earnings show company is ‘winning,’ but stock still falls

The additions were a far cry from what Charter had been posting earlier in the pandemic, but they were better than what Comcast Corp.
CMCSA,
-1.47%
reported a day before: a net loss of 26,000 subscribers, or a net gain of 4,000 when excluding one-time hurricane impacts.

See more: Why Comcast’s drab internet performance is actually the ‘sweet spot’

“If Comcast’s broadband subscriber numbers were, well, meh, Charter’s were better-than-meh,” MoffettNathanson analyst Craig Moffett wrote following the report. “Not ‘wow,’ mind you – dramatically overdelivering on net adds would be bad news rather than good, as it would potentially reset expectations unreasonably high – but notably better than Comcast’s, with or without hurricane-related one-timers.”

Broadband subscriber growth has been harder to come by—and in some cases nonexistent—for cable companies in recent quarters. They face a “steady fight against headwinds on broadband units,” said Sean McDevitt, a partner with Arthur D. Little, a global management consulting firm.

Cable companies are no longer benefitting from the sudden extra demand for bandwidth that came in the early days of the pandemic, and they also face various economic challenges, as move activity has been a bit lower and housing starts haven’t shown an uptick. Additionally, they’re staring down heightened competition from the wireless industry.

“They’ve done a very nice job of trying to keep themselves, relatively speaking, flat,” McDevitt told MarketWatch.  

That said, Comcast and Charter have a compelling new engine besides broadband, and experts saw nice progress for Charter in that regard last quarter. The company added 615,000 net wireless lines, ahead of the 365,000 Comcast showed a day earlier, and also ahead of what analysts said were expectations for just over 400,000.

As the wireless companies move deeper into home internet, the cable companies are ramping up their wireless offerings, which are essentially a repackaging of Verizon Communications Inc.’s
VZ,
+0.64%
network.

Charter’s results showed that the company “is winning at convergence,” in Moffett’s view.

“The growth in wireless is more than offsetting the declines in video and wired voice,” he said. “And while broadband unit growth has obviously slowed, broadband ARPU [average revenue per user] growth is re-accelerating.”

The new balance “drove an acceleration of revenue growth in Q4,” he continued.

McDevitt also sees a nice opportunity for the cable companies in wireless.

“It is a significant help in reducing churn in their customers,” he told MarketWatch, and the cable companies can sell wireless offerings to their whole customer base. That means the cable players could be having more of an impact with their wireless efforts than wireless companies are having with their new home-internet initiatives, since fixed-wireless access, an offering being pushed by T-Mobile US Inc.
TMUS,
-1.50%
and others, caters to a lower-end subscriber pool.

Charter was a big winner in terms of its wireless additions when looking at the industry as a whole, according to a list compiled by LightShed Partners analyst Walter Piecyk.

Verizon was the big loser, but McDevitt noted that its subscriber churn isn’t always a pure loss. Since Verizon partners with Comcast and Charter through a mobile virtual network operator (MVNO) model, “to extent Verizon loses any wireless customers” to cable, “they’re also picking up those subs on wholesale,” he said.

In that sense, Verizon is just “losing the delta between the retail and wholesale margin,” he continued. And if wireless consumers move to Comcast or Charter from a network other than Verizon, that represents some benefit to Verizon.

The company’s better-than-expected broadband and wireless performance wasn’t helping Charter’s stock Friday, however, with shares down 3.5% in afternoon trading.

Citi’s Michael Rollins wrote that Charter’s “better volume did not fully flow through to the financials,” as adjusted earnings before interest, taxes, depreciation, and amortization of $5.5 billion came in light.

“With ARPUs [average revenues per user] also slightly missing our estimate and consensus, the buy now, pay (more) later promotional strategy comes with risk, but may help to sustain a larger base of customers,” he wrote.

See also: Charter’s spending plans spook Wall Street