Time Warner Cable (NYSE:TWC) will release its fourth quarter earnings report on January 28th.  The company has been able to add pay-TV subscribers in 2015 in part due to its triple play bundling packages. Even though we believe that Time Warner Cable will eventually go back to losing pay-TV subscribers in the coming quarters, the company will do so at a slower pace as compared to its peers, such as Dish Network (NASDAQ:DISH) and Comcast (NASDAQ:CMCSA). In contrast, we expect steady growth in the high-speed data operations driven by rising residential and business demand for high-speed data services. Our expectations are in accordance with the changing complexion of Time Warner Cable’s business. Even though the company made its name in the past selling cable services, it is the high speed internet segment that is leading the growth charge in recent years.
Our price estimate for Time Warner Cable stands at $199, implying a premium of close to 10% to the market.
- Time Warner Cable Q1 Review: High-Speed Data Leads Revenue Growth, Company Gains Pay-TV Subscribers
- How Are Time Warner Cable’s Revenue & EBITDA Composition Expected To Change By 2020?
- What Has Led To A ~20% Increase In Time Warner Cable’s Revenues & EBITDA In The Last Five Years?
- How Has Time Warner Cable’s Revenue Composition Changed In The Last Five Years?
- How Much Can Time Warner Cable’s Revenues Grow Over the Next Five Years?
- What’s Time Warner Cable’s Fundamental Value Based On Expected 2016 Results?
Triple Play Bundling Is Helping Reduce Pay-TV Segment Subscriber Losses
The pay-TV industry has been losing subscribers for the past few years due to a combination of factors, including market saturation, fierce competition amongst cable companies, and the rise of cheaper alternative platforms such as Netflix (NYSE:NFLX), Hulu, etc. Time Warner Cable has also experienced a similar trend and its pay-TV subscriber base has come down from 13.3 million in 2007 to less than 11 million by the end of 2014.  However, the company has been able to slow the pace of decline in its subscriber base in the recent past. Time Warner Cable actually added 32,000 subscribers during 2015, the first instance of annual growth in nine years.  The company’s 2015 performance is a marked improvement over its performance in previous years, when it lost 408,000 and 833,000 subscribers during 2014 and 2013, respectively. 
We believe that the reduction in the pace of subscriber decline is driven in part by Time Warner Cable’s strategy of triple play bundling. Triple play bundling is the combining of the three services offered by the company — pay-TV, high speed data, and voice — into one package. This bundling helps reduce the subscription fees for subscribers as it saves on infrastructure costs and leads to operational efficiencies and economies of scale. Looking ahead, we believe that Time Warner Cable will eventually go back to losing pay-TV subscribers in the coming years, albeit at a slower pace as compared to its peers such as Dish and Comcast. Consequently, we believe that Time Warner Cable’s market share of the pay-TV market will decrease marginally from 11% in 2014 to just under 10% by 2022.
High Speed Data Segment Will Continue To Grow
High speed internet has remained the leading growth factor for the cable companies for quite some time now. There is a boom in demand in the U.S. due to a growing need for speed and connectivity. The use of multiple devices and higher penetration of smartphones is aiding the overall demand for high-speed Internet. Smartphone penetration has seen rapid growth from 54% in December 2012 to 77% in August 2015. Internet video, video-on-demand, and online gaming account for the majority of Internet traffic in the United States. Video streaming, for instance, requires high data volumes which explains why the reliance on fixed networks is far greater than that on mobile carriers. As a result of the strong demand for high-speed internet, Time Warner Cable has seen rapid growth in its high speed data segment in recent years, with the subscriber base growing from less than 8 million in 2007 to just over 13 million by the end of Q3 2015.  Subscriber growth has been especially strong during 2015, so much so that Time Warner Cable pre-released its subscriber metrics for the full-year before the scheduled earnings release to announce that the company recorded high-speed internet net additions of 1 million for the year.  We expect Time Warner Cable to continue to gain high speed data subscribers throughout our forecast period, growing its market share of the high-speed internet market from 12.8% in 2014, to 14.5% by the end of 2022.
View Interactive Institutional Research (Powered by Trefis):Notes:
- Time Warner Cable to Report 2015 Fourth-Quarter and Full-Year Results, January 6, 2016, Time Warner Cable Investor News [↩]
- Time Warner Cable’s SEC Filings [↩] [↩]
- Time Warner Cable Delivers Its Best Full-Year Residential Subscriber Growth Ever, January 04, 2016, Business Wire [↩] [↩]
- Time Warner Cable’s SEC Filings [↩]