The Ratings Game: Why Charter Communications could be in same ‘exclusive’ club as Amazon and Netflix
The Ratings Game
Broadband subscriber growth easily tops estimates, suggesting to analysts that Charter could grow stronger during COVID-19
Charter Communications Inc. crushed broadband-subscriber estimates and showed improvement in its video-subscriber losses, fueling excitement about the company’s positioning both during and after the COVID-19 crisis.
The cable company added 563,000 residential internet customers in the March quarter, far above the 374,000 that analysts surveyed by FactSet had been expecting.
What’s more, estimates for that metric had already been “ratcheted up” after Charter
issued an upbeat filing a few weeks back, MoffettNathanson analyst Craig Moffett wrote, making the company’s beat more impressive in his view.
Charter shares are up about 3% in afternoon trading despite earnings and revenue that came up shy of the consensus view.
While Charter saw shed 70,000 residential video subscribers, those losses were an improvement over the 152,000 the company shed in the prior March quarter. Charter is “so far the ONLY company to show improving video performance,” LightShed Partners analyst Richard Greenfield said in a tweet.
Analysts don’t mind video subscriber losses too much as the video business weighs on margins for Charter and other cable operators.
“In the current quarter Charter will cross a major milestone as high (80+%) EBITDA-margin residential data revenue will replace low-margin (10-15%) PayTV revenue as the primary revenue source for the company,” wrote Pivotal Research Group analyst Jeff Wlodarczak, who rates the stock a buy and elevated his price target to a Street-high $700 from $625.
Wlodarczak called the company’s report “bulletproof.”
Moffett wrote that reduced reliance on video is the heart of his bullish view on Charter’s stock because growth in broadband average revenue per user (ARPU) should “accelerate” as customers shed their video plans and move away from bundled discounts. At the same time, Charter’s “non-programming costs” should drop along with video subscribers.
“All of that seems to be playing out according to script; indeed, the COVID crisis seems only to be accelerating this trend as churn falls and activity levels therefore decline,” wrote Moffett, who has a buy rating and $574 target price on th stock.
He suggested that Charter may have proven with its latest report that it belongs in the “exclusive” club of companies that could emerge “for whom the coronavirus is more opportunity than crisis,” especially as the demand for strong broadband connection grows.
While Charter’s stock is “widely held, and widely liked,” shares of Amazon.com Inc.
and Netflix Inc.
are too, and those companies are “viewed as long term structural winners,” Moffett said. “Today’s results make the case that Charter should perhaps be viewed the same way. Cable’s advantaged infrastructure will do more than just persevere through the crisis.”
Charter shares have gained 5.1% so far this year, as the S&P 500
has declined 12%.