Time Warner Cable Earnings Jump 20% Over Broadband Growth

Time Warner Cable (NYSE:TWC) recently reported its Q1 2014 earnings with 20% jump in quarterly profits to $479 million or $1.70 per share. The revenues grew by 2% to $5.58 billion, led by 11% revenue growth in the broadband business. The company added 269,000 broadband subscribers, the most since the first quarter of 2008. ^[1] The growth in broadband segment was driven by the higher average revenue per subscriber (ARPU), which increased by 9% to $46.32. On the pay-TV front, the company managed to cut down its residential subscriber losses to 34,000 as compared to 217,000 subscribers it lost in the last quarter of 2013. ^[2]

TWC’s business services segment continued to outperform with 24% revenue gains, driven by the growth in broadband and voice subscribers.  Going forward, the company should continue to see robust growth in its broadband business due to the increasing demand for higher speed and connectivity. However, taming the pay-TV subscriber losses remains a key challenge for the company.

See our complete analysis for Time Warner Cable

Pay-TV Subscriber Trends Improve

The pay-TV business contributes around 45% to Time Warner Cable’s value, according to our estimates. During the first quarter, pay-TV revenues declined by 7% to $2.58 billion as compared to the prior year quarter. Pay-TV ARPU remained flat at $74.51 for the quarter. ^[1]

The company has been losing video subscribers for several quarters now. The pay-TV operators in the U.S. lost over 104,000 subscribers in 2013. ^[3] This can be largely attributed to 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.  While Comcast (NASDAQ:CMCSA) has managed to turnaround its subscriber losses in the last two quarters over its X1 platform and triple play bundling, it appears a challenging roadmap for Time Warner Cable (Read – Comcast Adds Pay-TV Subscribers For The Second Consecutive Quarter; Q1 Results Impressive With Strong Growth Across The Segments). Even for Comcast, we believe this turnaround could be short-lived as cord cutting continues and alternate video platforms such as Netflix continue to add more subscribers (Read – Netflix Continues To Benefit From Content Superiority).

Broadband Subscriber Additions Best Since 2008

Broadband contributes close to 34% of Time Warner Cable’s stock value, according to our estimates. Broadband revenues increased by 11% to $1.56 billion in the first quarter. Around $29 million revenues came form DukeNet, which was acquired by Time Warner Cable towards the end of 2013. ^[2] High speed Internet revenue from business services jumped 20% to $306 million. Broadband has remained the leading growth factor for the cable companies for quite some time now. There is a boom in demand for broadband in the U.S. as there is a growing need for speed and connectivity. Currently, broadband has penetrated into 75% homes and there is still much room left for growth, and this will benefit the cable industry in particular as it accounts for 59% of the U.S. broadband market. ^[4] We expect Time Warner Cable to continue to add broadband subscribers in the near term.

1. Time Warner Cable’s SEC Filings [↩] [↩]
2. Time Warner Cable’s CEO Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, Apr 24. 2014 [↩] [↩]
3. Major Multi-Channel Video Providers Lost About 105,000 Subscribers in 2013, Leichtman Research Group, Mar 14, 2014 [↩]
4. The State of the Internet, Akamai [↩]