Bloomberg News

Time Warner Cable Slumps as Video Losses Top Estimates

October 27, 2011

(Updates with closing shares in second paragraph.)

Oct. 27 (Bloomberg) -- Time Warner Cable Inc., the second- largest U.S. cable-television operator, fell the most in almost 18 months after reporting third-quarter profit that missed analysts’ estimates because of video-customer losses.

Earnings per share were $1.08, the New York-based company said today, missing the average analyst projection of $1.14. The shares fell 7.7 percent to $65.17 at 4:02 p.m. New York time, the biggest one-day decline since May 2010.

Time Warner Cable lost 126,000 video subscribers as customers defected to Verizon Communications Inc.’s FiOS, AT&T Inc.’s U-verse and DirecTV, according to Vijay Jayant, an analyst at ISI Group in New York. Analysts estimated a loss of 113,000, according to data compiled by Bloomberg. Overall customers -- video, phone and broadband for corporations and households -- fell by 16,000 in the quarter.

“The aggregate customer number is one investors watch, and a negative number may cause the stock to be weak again,” said Laura Martin, a Needham & Co. analyst in Pasadena, California.

DirecTV’s “Sunday Ticket” promotion, which gave new customers a free subscription to access all Sunday National Football League games during the year, likely accelerated Time Warner Cable’s video decline, Jayant said. DirecTV will release its quarterly results Nov. 3.

Time Warner Cable’s revenue rose 3.7 percent to $4.9 billion, compared with analysts’ average estimate of $4.94 billion. Net income fell to $356 million from $360 million, or $1 a share, a year earlier.

Slowing Buybacks

The company slowed its share buybacks in the quarter, repurchasing 8 million shares for $573 million. In the second quarter, Time Warner Cable bought back 11.5 million shares for $863 million. Chief Executive Officer Glenn Britt said the pullback was due to the company’s $3 billion acquisition of Insight Communications Co. in August.

Investors may be selling today partly as a protest to the company’s decision to slow repurchases, said Amy Yong, an analyst at Macquarie Securities in New York.

“Even with the Insight purchase, most people didn’t expect buybacks to slow down to this degree,” Yong said.

The company gained 89,000 residential high-speed data clients and 16,000 business customers. Residential broadband revenue grew 7.8 percent while video sales fell 0.5 percent.

Britt is positioning Time Warner Cable to be an Internet provider first and a video operator second, according to Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.

Betting on Broadband

“Broadband is Britt’s anchor product now,” Moffett said. “The cable operators are running away from AT&T and Verizon in the broadband business, which has become the engine that’s carrying Time Warner Cable.”

The 105,000 net broadband-customer gain is four times more than what AT&T and Verizon added this quarter combined, a sign that there is “unquenchable consumer thirst” for Time Warner Cable’s product, Britt said on the conference all. Verizon added about 20,000 broadband customers and AT&T gained 3,000.

Fourth-quarter video and broadband net additions are trending similar to a year ago, Time Warner Cable Chief Financial Officer Irene Esteves said on a conference call.

Voice-line additions are trending lower, she said. Time Warner Cable gained 5,000 voice line customers, its lowest quarterly increase since the company was spun off from Time Warner Inc. in 2009.

To fuel demand for its video product, the company introduced an application this year that lets people watch live programming on Apple Inc.’s iPad tablet computer. Time Warner Cable plans to make the app available on other devices, Britt said on today’s call.

The devices include Android-based smartphones and tablets, game consoles, Internet-connected TVs and personal computers, according to spokesman Justin Venech.

--Editors: Ville Heiskanen, Peter Elstrom

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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