Time Warner Cable Q1 Earnings Preview: Pay-TV And Broadband Subscriber Trends In Focus

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Time Warner Cable (NYSE:TWC) will report its Q1 2014 earnings on April 24 and we will be closely watching for any update on the proposed merger with Comcast (NASDAQ:CMCSA). We believe that the company will see continued growth in broadband business as the residential and business demand for high-speed data services continues to grow on the back of increased use of multiple devices and higher penetration of smartphones. We are eager to see how the company’s pay-TV subscribers are trending given that Comcast managed to add 24,000 video customers during the first quarter. [1] Time Warner Cable has been losing video subscribers for several quarters amid increasing competition from telcos, alternative video platforms, and the frequent blackout of various networks in many of its serviced areas.

See our complete analysis for Time Warner Cable

Broadband Will Stay Firm

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The broadband business has done well for Time Warner Cable, benefiting from rising demand for faster Internet and a decline of DSL Internet connections. From 7.9 million subscribers in 2007, Time Warner Cable’s broadband base increased to 11.61 million in 2013. [2] The broadband business generated revenues of $6.9 billion in 2013, 15% higher compared to 2012. We expect broadband revenue will continue to increase as the U.S. broadband market is growing rapidly, driven by an improving economy and growing need for higher speed connectivity. The increased use of multiple devices and higher penetration of smartphones is also aiding broadband demand.

According to a report by Akamai (NASDAQ:AKAM), the U.S. ranks 18th overall in broadband penetration worldwide. The U.S. had 75% of the population on broadband connections. [3] Given that only 75% of Americans use broadband, there is still much room left for broadband to penetrate, and this will benefit the cable industry in particular as it accounts for 59% of the U.S. broadband market and Time Warner Cable commands 14% share of the industry.

 

Watchout For Pay-TV Subscriber Trends

The pay-TV business contributes around 45% to Time Warner Cable’s value, according to our estimates. For cable companies in the U.S., the past several quarters have been tough, as they experienced significant challenges in retaining their pay-TV subscribers. This difficulty reflects a combination of market saturation, fierce competition, and the increased focus of providers on acquiring higher-value subscribers. Moreover, some consumers opt for a lower-cost mixture of over-the-air TV, Netflix (NASDAQ:NFLX) and other over-the-top viewing options.  By the end of 2013, Time Warner Cable’s video subscribers fell to 11.4 million, down 825,000 from 2012. [2] Last year, the company stated that it will pursue subscribers with higher ARPU (average monthly revenue per subscriber), higher profit and lower churn, even if that means fewer connects. However, it has so far not been able to tame the subscriber losses. On the other hand, Comcast reported modest gains in pay-TV subscribers for two consecutive quarters. After losing thousands of pay-TV subscribers, Time Warner Cable has now been re-branding itself as a pure broadband player.

Notes:
  1. Comcast’s SEC Filings []
  2. Time Warner Cable’s SEC Filings [] []
  3. The State of the Internet, Akamai []