On Sep 11, 2014, we issued an updated research report on Time Warner Cable Inc. (TWC).
The company missed our earnings and revenue estimates for the second quarter of 2014, although results improved year over year on both lines. Quarterly adjusted earnings per share of $1.89 lagged the Zacks Consensus Estimate of $1.93. At $5,726 million, the quarter’s total revenue missed the Zacks Consensus Estimate of $5,741 million, but was 3.2% up year over year.
In the second quarter, Time Warner Cable generated significant subscriber growth for its residential high-speed data and voice subscribers. Residential high-speed data subscribers rose 67,000 to 11.415 million whereas voice subscribers grew 79,000 to 4.975 million. High-speed data revenues were $1,606 million, up 12.8% year over year. Increase in high-speed data revenues was driven by a surge in average revenue per subscriber which, in turn, was boosted by a rise in prices and equipment rental charges as well as an increase in the number of subscribers buying costlier services.
In the reported quarter, Time Warner Cable launched several innovative products and services. This induced a 1.7% upside in average monthly revenue per user to $106.98 while residential high-speed data ARPU increased 9.7% to $46.92. Recently, Time Warner Cable extended NBC Universal’s Sports, News and Entertainment Programming services to its video customers through its TV Everywhere application.
On the downside, rising programming costs pose a major threat to Time Warner Cable. Programming costs accounted for more than 36% of the company’s total expenses. In the second quarter, average monthly video programming costs per subscriber rose 10.8% year over year to $38.29. Meanwhile, stiff competition from cable and telecom players and mounting programming expenses will continue to act as headwinds for the company.
Time Warner Cable is persistently losing video customers despite implementing several strategies. In the residential services segment, second quarter video revenues were $2,546 million, down 4.8% from the prior-year period. On the other hand, large telecom players like AT&T (T) and Verizon Wireless (VZ) continue to gain video subscribers, thereby offering stiff competition to the cable company. Moreover, low-cost video streaming offerings by companies like Netflix (NFLX) and Hulu will likely affect the company’s subscriber growth further.
Time Warner Cable currently bears a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks worth considering in this sector include Cablevision Systems Corp. (CVC), Comcast Corp. (CMCSA) and Saga Communications Inc. (SGA). All these stocks carry a Zacks Rank #2 (Buy).
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