Could weak fourth-quarter subscriber data put an end to an “epic rally” which has seen Charter’s stock price nearly double to more than $323 over the last year?
In a report sent to investors late last week, MoffettNathanson analyst Craig Moffett insisted he’s not giving a “closet downgrade” to the MSO. But he expects some cooling for Charter, which has been white-hot on Wall Street, especially since speculation began that Verizon might buy the cable operator.
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“Yes, Charter’s fourth-quarter financial results were very good, with clear beats on margins, earnings and free cash flow … but their subscriber metrics were soft, not only in video but also, and perhaps more importantly, in broadband," said Moffett. "After the epic rally in Charter shares over the past few months, anything less than a significant upside surprise would likely be taken as a reason to take profits.”
Charter reported fourth-quarter losses of 105,000 video customers, driven mostly by defections of Time Warner Cable subscribers amid the post-merger transition to Charter’s spectrum brand. Broadband subscriber growth fell short as well, coming in at 357,000 amid a forecast of around 435,000.
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Barclays analyst Kannan Venkateshwar also described himself as being “on the sideline” in regard to Charter.
“The effect of promotions undertaken by Time Warner Cable prior to the merger [with Charter] is likely to last until the third quarter,” Venkateshwar said in his own note to investors.
“Beyond this, the competitive landscape is likely to intensify with Hulu and YouTube launches and video being bundled with wireless,” he added. “Going into next year, the all-digital rollout could cause a step up in churn. Therefore, while broadband growth is likely to continue, the turnaround in video performance seen in legacy Charter, which also benefitted from a low base and market structure, may be tougher to come by for some time.”