Time Warner Cable’s Broadband Growth Should Compensate For Sluggish Pay-TV Business

TWC: Time Warner Cable logo
Time Warner Cable

Time Warner Cable (NYSE:TWC) will release its Q2 2012 earnings on August 2 and, as always, pay-TV and broadband growth will be the focus. While pay-TV subscription business continues to disappoint for Time Warner Cable, broadband growth is more than making up for it and, consequently, the stock has performed well. The results are not likely to bring any respite for the company’s pay-TV business as Q2 is a seasonally weak quarter and the recent disclosure of Dish Network’s (NASDAQ:DISH) subscriber losses lends support to this point (see Dish Is Good For $34 But Recent Filing Shows Subscriber Losses). Nevertheless, we do expect growth in average revenue per subscriber (ARPU) due to adoption of advanced services such as HD and DVR. Though Time Warner Cable has lost subscribers, it has been able to grow revenues due to ARPU improvement.

See our complete analysis for Time Warner Cable

Broadband has been a fabulous story for Time Warner Cable. Not only has it gained subscribers, but it also has managed to grow its ARPU as its customers continue to shift to higher-priced, faster broadband tiers. We expect this trend to continue when the company reports its earnings. One of the interesting developments last quarter was Time Warner Cable’s experimentation with tiered broadband pricing (see Time Warner Cable Expands Its Usage-Based Broadband Pricing). This is not yet deployed on a large scale, but the fact that the company is expanding indicates some initial success and adoption. It will be interesting to watch for any additional color regarding the strategy and results.

Relevant Articles
  1. Time Warner Cable Q1 Review: High-Speed Data Leads Revenue Growth, Company Gains Pay-TV Subscribers
  2. How Are Time Warner Cable’s Revenue & EBITDA Composition Expected To Change By 2020?
  3. What Has Led To A ~20% Increase In Time Warner Cable’s Revenues & EBITDA In The Last Five Years?
  4. How Has Time Warner Cable’s Revenue Composition Changed In The Last Five Years?
  5. How Much Can Time Warner Cable’s Revenues Grow Over the Next Five Years?
  6. What’s Time Warner Cable’s Fundamental Value Based On Expected 2016 Results?

In summary, we expect continued revenue growth but pay-TV subscriber defections will continue. Further, we expect impressive results for the broadband business. Although we expect VoIP to do well too, its relative importance is quite less compared to the other two businesses. Broadband and digital pay-TV services constitute roughly 40% each to Time Warner Cable’s value.

Our price estimate for Time Warner Cable stands at $83, roughly in-line with the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis