Time Warner Cable Pops on Positive Earnings Surprise
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Time Warner Cable (NYSE: TWC) released the company's fourth quarter and full year results before market open. Earnings handily beat the estimates and the stock gapped up $5.00 at the open. TWC shareholders saw their holdings close out the day with a nearly 8 percent profit. Will the other cable and satellite companies be able to deliver similar results? Time Warner Cable was first out the door for this earnings period so it will be interesting to see how competitors fare.
Time Warner Cable reported net income of $1.75 per share for the fourth quarter, up 60 percent from the $1.09 posted a year earlier. The earnings excluding special items were $1.39 per share, well above the Wall Street consensus estimate of $1.22. Revenue in the quarter increased by 4 percent from a year earlier to $4.99 billion. Cable TV revenue increased by just 0.2 percent on a quarter over quarter basis and total annual revenue for cable TV for the full year was up just 0.1 compared to 2010. Cable TV accounts for about half of Time Warner Cable revenue. High-speed data services – Internet services – account for one-quarter of revenue and were up 8.6 percent on both an quarterly and annual basis. The strong results for this cable TV company were from the sales of more expensive Internet packages and more customers signing up for multiple services, including digital voice as well.
In spite of the great news on the profit front, some of the subscriber numbers from Time Warner could be a warning to investors. The company reported a net decline of 129,000 in cable TV subscribers. The total number of cable subscribers stood at 11.9 million. The drop in cable customers was almost offset by the 117,000 new subscribers for high-speed Internet.
Competitor cable services seem to be picking off some of the Time Warner customers. Verizon (NYSE: VZ) reported 194,000 new subscribers for its FIOS TV service bringing the total to 4.2 million. AT&T (NYSE: T) added 208,000 subscribers to its U-Verse TV service for a total of 3.8 million. Of course, the Time Warner Cable subscriber losses were less than the total adds by Verizon and AT&T. The point of the data is that the universe of cable subscribers is probably not growing very fast, and the cable companies can only add subscribers by taking them from other cable or satellite TV service companies.
The positive results from Time Warner Cable helped push the shares higher of other cable TV providers such as Cablevision Systems (CVC), Comcast Corp. (CMCSA), Charter Communications (CHTR) and Dish Network (DISH). These stocks jumped by 2 to 4 percent after TWC gapped open higher. However, the other cable companies slid in value throughout the trading day and ended up with gains of about one percent. DISH fell back to slightly below break even on the day.
In the days to come it will be interesting to see if any, some or all of the other cable companies are able to post results similar to Time Warner Cable. Comcast reports on Feb. 14 with the current estimate of 41 cents per share compared to the year ago 34 cents. Cablevision Systems reports on Feb. 28 and is forecast to earn 24 cents per share, compared to 41 cents a year earlier. Charter Communications also reports on Feb. 28 with an expected loss of 31 cents per share, a significant possible improvement over the 75 cents loss the previous year. Dish Network reports on Feb. 23. The consensus earnings estimate for the satellite company is 62 cents compared to 56 cents for the fourth quarter of 2010.
The surprise positive results posted by Time Warner Cable were due to increased numbers of high-speed Internet and multi-product subscribers – referred to as double and triple play subscribers in the industry. To coin a new term, this may be the "Netflix effect" as customers are more attracted to more expensive higher-speed Internet packages to be able to stream more free or low-cost Internet services such as streaming movies from Netflix. The infrastructure to own the "pipe" for Internet programming may be as valuable than providing the online content.
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