Time Warner Cable Inc. (TWC) reported strong financial results for second-quarter 2011. Despite this, we remain highly concerned regarding massive video subscriber loss of the company. In the last quarter, revenue inched up 4.4% while adjusted OIBDA grew 4.2%, resulting in margin compression. However, management is following a systematic share buy-back program, which may support the bottom line in the near term.
Major concern for the pay-TV industry is the prolonged macro-economic fluctuations in the U.S. Unemployment rate is high, which resulted in lower disposable income for households. As a result, the housing sector is witnessing a continuous slump. Cable TV operators are very much dependent on new households to strengthen their client base and Time Warner Cable is no exception. In the U.S., cable operators are facing fierce competition from telecom service providers. Telecom giant, such as AT&T (T) and Verizon Communications Inc. (VZ), are quickly gaining market share from cable MSOs by offering fiber-based TV and other high-speed broadband services to subscribers.
Newly developed online video streaming service providers, such as Netflix Inc. (NFLX), Hulu.com, uTube etc. have become a severe threat to cable TV operators. These online videos provide an extremely cheaper source of TV programming unless the customer is very eager to see real time programs like sports events.
However, a major positive for Time Warner Cable is the systematic approach taken by management to raise its shareholders’ wealth. In the fourth quarter of 2010, the company hiked its quarterly dividend rate by 20% to $0.48 per share and announced that the board of directors of Time Warner Cable authorized a massive share buy-back program of $4 billion. The company repurchased 11.5 million shares in the reported quarter for $863 million. Management will return almost $5 billion to the common shareholders by these two measures.
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