Shares of Charter Communications Inc. have suffered. of its worst single-day decline ever on Friday, as the company's latest earnings illustrated ongoing pressures in the cable industry.
The company reported a net loss of 61,000 broadband subscribers, while analysts were expecting slight positive growth even as management previously expected net additions to be negative.
CHTR Charter,
It said growth in its subsidized rural customers has been faster than expected, but some analysts have pointed to the flip side of that dynamic. “It makes the implication in their legacy footprint even more troubling,” Craig Moffitt, a MoffettNathanson analyst, wrote in a note to clients.
Charter shares fell 16.5% in Friday trading to record their worst single-day decline on record.
Traditional cable providers such as Comcast Corp.CMCSA,
Charter faces increasing competition from wireless carriers, which are pushing fixed wireless access (FWA) services to their subscribers. Verizon Communications Inc VZ,
and T-Mobile US Inc.TMUS,
They are among those who provide Internet service to customers built on their wireless networks. In addition, Charter faces competition from fiber offerings.
See also: Comcast is shedding fewer Internet subscribers than expected while beating profits
“Although we are well executing on our long-term strategic initiatives and Spectrum One is working to drive mobile growth, Internet growth in our existing footprint has been challenging, driven, admittedly, by continued competition from fixed wireless and similar levels of wireline,” he said. Charter President and CEO Chris Winfrey on the company's earnings call: “Overactivity.”
“Competitive density of fiber and fixed wireless access remains high, and challenges are expected to continue into 2024, despite rural penetration being achieved ahead of schedule,” commented Laurent Yoon, Bernstein analyst.
He added: “If you want to get depressed about cable, just listen to FWA leaders' comments about their plans over the next two years (and beyond).”
For her part, Winfrey said that “the impact of fixed wireless is temporary,” in Charter’s view.
“Our internet product is faster and more reliable,” he said on the call. “Our prices are lower when similarly bundled with mobile. Customers' bandwidth needs continue to increase.
Another issue of concern to charter investors is the company's forecast for capital expenditures.
“Charter provided long-term guidance for capital expenditures through 2027, which is higher than our 2024 and 2025 estimates and consensus,” Walt Piecek and Joe Gallon, analysts at LightShed Partners, wrote in a note to clients. “It will start to decline in 2026, but the range suggests a higher capital intensity than previous evidence.”
What's next for the charter? Bernstein's Yoon believes the company needs to focus investors' attention on its financials rather than subscriber performance.
“This simpler story will resonate better with cable investors who have realistic expectations: growth [the top line] Books in low single digits and the margins expand a little faster. “Comcast has implemented this successfully [investor relations] The strategy (but a different set of challenges) and the charter should follow suit. Chasing submarines is not a viable option in the near term given the obvious headwinds.
Yoon evaluated the market performance of charter shares, lowering the price target to $414, from $425, in his latest note.
MoffettNathanson's Moffett said the company doesn't need to dramatically revamp its broadband subscriber numbers to satisfy investors. “Executives just need to show that the broadband unit's results are predictable enough, at a level reasonably close to zero or slightly better, to allow focus on all the other good things going on,” he wrote, citing average wireless growth. Revenue per user and margins are among the positives.
Friday's earnings report “is a depressing reminder that they're not there yet,” added Moffitt, who rates the stock a buy with a price target of $660.
The results were enough to make Wells Fargo's Steven Cahall change his stance on the stock, downgrading his rating from overweight to equal weight.
Charter's latest numbers “change our thesis,” he wrote, because he now expects a “tougher” broadband environment. Meanwhile, the company's free cash flow turnaround “seems a long way off.”
Cahall lowered his price target to $340, from $460, in a note late Friday.
