Traditional TV subscription losses are minimized by Charter, but shares plummet due to internet service struggles
In the world of telecommunications, Charter Communications has been making headlines recently, with its stock taking a significant hit. Despite reporting lower-than-expected video subscriber losses, the company experienced a steep decline in broadband subscribers, causing concerns among investors.
Charter, the top operator in the industry with 12.6 million residential and small-business video subscribers, lost 117,000 broadband customers in Q2, more than anticipated. This marks a continuation of a long trend with broadband subscriber losses stretching to seven consecutive quarters, indicating ongoing challenges in retaining its most profitable customer segment.
The higher broadband churn signals increased pressure from wireless competitors and a more difficult market environment than investors anticipated. Although the company’s video subscriber losses improved compared to the prior year and its mobile segment grew strongly, the steep decline in broadband subscribers overshadowed these positives.
Investor sentiment is negatively affected by the large pending $34.5 billion acquisition of Cox Communications, which has not yet closed and carries regulatory uncertainty. This merger concern, combined with disappointing subscriber metrics, has deepened investor skepticism about the company’s near-term outlook and its ability to successfully turn around broadband subscriber losses.
As a result, the stock experienced its largest one-day percentage drop on record (over 18%) and hit a 12-month low. Analysts also lowered price targets and ratings, further pressuring the share price. The market is pricing in continued subscriber pressure and uncertainty about the company’s turnaround and merger prospects.
On the brighter side, Charter closed Q2 with 29.9 million high-speed data subs, and its residential broadband ARPU came in at $71.25, up nearly 5% compared to the previous year. The company attributes the video subscriber improvement to the offering of cheaper skinny-bundle packages that include popular streaming services, such as Hulu, which will also be included in Charter's traditional packages.
Meanwhile, the NBA playoffs, scheduled to start on August 16, 2023, are expected to provide a significant viewership opportunity for Peacock, NBCUniversal's streaming service, owned by Comcast. The success of the NBA playoffs on Peacock could impact Comcast's overall financial outlook, as the financial performance of Peacock has been a concern for the company.
The cable business has been struggling with broadband churn for the past three years due to customers migrating to cheaper mobile hookups from telcos like T-Mobile and Verizon. This trend has affected the industry churn rate for video subscribers, which has remained steady at -12%, but Charter's contraction was only -5%.
Despite these challenges, Charter's pay-TV unit experienced its strongest quarter in four years. However, the steep decline in broadband subscribers has overshadowed these positive developments, leading to the stock's decline. The stock plunged 18% on Friday to close at $309.75, and it has yet to recover. On Monday afternoon, the stock closed at a near-52-week low of $298.27 a pop.
In conclusion, Charter Communications' stock decline is primarily due to broadband subscriber losses far exceeding analyst expectations, persistent competitive pressure in broadband vs. wireless alternatives, investor skepticism about the timeline and effectiveness of turnaround plans despite management reassurances, concerns about the pending Cox Communications merger and regulatory risks, and lower investor confidence translating into analyst downgrades and sharply falling stock price.
- The steep decline in Charter Communications' broadband subscribers has raised concerns in the finance industry about the company's ability to turnoaround its losses and its near-term outlook, leading to a significant drop in its stock price.
- Despite the ongoing challenges in the telecommunications industry, especially in broadband services, the finance industry has been closely monitoring the potential impact of the NBA playoffs on Peacock, NBCUniversal's streaming service, owned by Comcast, due to its implications on the overall financial outlook of the company.
