Charter Communications’ stock plummeted following a poor first quarter showing Friday, with the cable operator reporting significantly worse-than-expected pay TV customer losses of 112,000.
“Whatever goodwill was gained with last quarter’s strong results was lost as 1Q subscriber trends disappointed,” Jeffries equity analyst Scott Goldman wrote a Monday research note. Jeffries had forecast Charter would lose about 30,000 video subscribers for the quarter.
In the first quarter of 2017 Charter lost about 100,000 pay TV customers.
Charter added 331,000 residential broadband customers, compared to 428,000 in the year ago period. While the No. 2 U.S. cable company’s broadband base is growing at 5.3 percent, it has decelerated from 7 percent a year ago.
“All evidence continues to point to moderating industry growth rates as [broadband] penetration in the U.S. gradually slows towards saturation, rather than escalating competitive intensity, as the reason for the deceleration,” MoffettNathanson analysts wrote in a Friday research note.
Revenue for the first quarter still managed to grow 4.9 percent year over year to $10.7 billion, while first quarter adjusted EBITDA grew 6.5 percent to $3.9 billion.
Still, Charter experienced a steep sell-off of shares, with the price falling to up to 16 percent on Friday to $250.10. The rest of the industry followed suit, with sell-offs of Comcast, Dish Network, AT&T, Altice USA and Cable One shares.
On Charter’s first quarter earnings call CEO Tom Rutledge attributed higher churn to customer service system changes that are being made as part of integrating Time Warner Cable and Bright House Networks, which the company acquired in 2016. Executives said disconnecting non-paying subscribers also had a big impact on subscriber figures, but should improve by the end of the second quarter.
Rutledge said that the complex integration of three companies into a single platform is “actually going quite well,” and though acknowledged “lumpy aspects” of combining said “generally we are going exactly as we planned.”
In regards to 5G CFO Christopher Winfrey said that based on the company’s infrastructure, Charter sees itself as the “natural small cell provider.”
“We have the most efficient ability to provide small cell connective compared to any other small cell competitor we have,” Winfrey said. He noted Charter already has 26 million small cells connected to their network and 250 million wireless devices connected to the small cell network. “And we plan to continue to build out the small cell environment.”
Charter is “on track” to launch its own wireless service in the middle of this year under an MVNO agreement with Verizon and Rutledge disclosed that the company recently launched a field trial with 5,000 employees. The operator hopes its wireless service will help attract and retain cable customers through bundling options.
Broadband remains to be a key focus as well, with Charter announcing earlier this week that it had expanded availability of its DOCSIS 3.1-powered gigabit internet service to an additional 14 million homes.
Rutledge said the company aims to deliver “fast, reliable bandwidth-rich connectivity products.”
Charter said at the end of the first quarter about 20 percent of its legacy Time Warner Cable and 60 percent of Bright House networks still carry full analog video lineups. The company expects to have its entire footprint fully digitized with two-way set-tops by the end of 2018.
