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May 06, 2009

Cablevision Earnings Preview: Stakes Raised By Earlier Cable Reports

First Time Warner Cable (TWC) and then Comcast (CMCSA) set the table for Cable vision (CVC) with stronger than expected earnings reports. The first two reports revealed financial and subscriber metrics that were better than expected pretty much across the board. In earlier quarters as cable metrics decelerated, CVC was generally able to buck the trend. It will be interesting to see if the company continues to out outperform its peers when it reports 1Q results on Thursday morning.

Analysts expect EPS of 15 cents and $1.9 billion in revenues. Revenue and EBITDA growth in core cable operations is expected to be around 10%. TWC was considered to have done well with 5% growth and CMCSA with 8% growth. CVC benefits from its focus and a single cluster of subs in New York and a fully upgraded network offering the fasters and most digital network among major cable companies.

Surprisingly, CVC has been able to maintain its growth profile even as Verizon (VZ) has aggressively rolled out its FiOS fiber to the home network in much of CVC's footprint. Aggressive investment in updated plant and effective triple play promotions have enabled CVC to fend off the challenge so far. I expect 1Q09 to show more of the same but any sign that FiOS is having a growing impact and slowing CVC's growth would be treated rudely by investors.

Subscriber metrics should all be in positive territory. Analysts are looking for alight pick up of basic cable subscribers, about 25,000 new digital TV subs, about 35,000 high speed internet net adds, and around 50,000 additional VOIP telephone subs. Pricing is expected to remain fairly stable with the focus on high speed data where some fall in ARPU is likely. Price competition between cable and telco has been surprisingly mild during the recession even as sub growth has slowed. I believe a price war remains the single greatest risk to cable and telco investors.

Since it is CVC, the conference call will also have plenty questions about the company's strategic direction and balance sheet. Management has made moves to extend maturities taking the pressure off a leveraged balance sheet. Potential merger and acquisition activity will be of interest with CVC as both a buyer and seller. An update on the ill-timed Newsday acquisition is expected.

I also want to hear details on the rollout of WiFi service across the footprint. I think this is a very effective way for CVC to respond to smartphones, next generation wireless networks, and the FiOS bundle that includes wireless phone. CVC is unique among cable companies in that its tight cluster allows WiFi as an option.

The outlook for cable is better than I thought and the stocks are still cheap by historical standards, especially as free cash flow is really kicking in as capital spending moderates. However, the group has rallied very hard off the TWC and CMCSA results so the possibility that even a good report by CVC is met with a yawn is possible.

Posted by Steve Birenberg at May 6, 2009 10:28 AM in CVC