On Dec 31, 2014, we issued an updated research report on Time Warner Cable Inc. (TWC). The company posted disappointing third-quarter 2014 financial numbers. The top and the bottom line missed the Zacks Consensus Estimate; however, both increased on a year-over-year basis.
During the third quarter, Time Warner Cable generated significant subscriber growth for its residential high-speed data and voice subscribers. Residential high-speed data subscribers rose by 92,000 to 11.507 million whereas voice subscribers grew 14,000 to 4.989 million. High-speed data revenues reached $1,620 million, up 10.9% year over year. The increase in high speed data revenues was driven by a surge in average revenue per user (ARPU).
Moreover, the Business Services segment emerged as a major growth driver at Time Warner Cable. In the reported quarter, Business services revenues grossed $724 million, up 28.5% year over year. The company intends to double its revenues in this segment within the next 4 to 5 years.
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 third quarter. Average monthly video programming costs per video subscriber rose 11% year over year to $38.96. Over the last four years, programming costs per customer has grown 32%, primarily due to a rise in contractual rates with TV channels (content developers), especially sports channels.
To add to the woes, Time Warner Cable is persistently losing video customers despite implementing several strategies. Meanwhile, large telecom players like AT&T and Verizon Wireless continue to gain video subscribers, offering stiff competition to the cable company.
Time Warner Cable currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks worth considering in this sector include Liberty Global plc (LBTYA), DigitalGlobe, Inc. (DGI) and ORBCOMM, Inc. (ORBC). All the three stocks carry a Zacks Rank #2 (Buy).
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