Charter Communications reported lower fourth-quarter earnings as it lost more Internet subscribers than expected, which drove the cable company's stock lower.
Charter lost 61,000 broadband customers, leaving it with 30.6 million internet customers. Over the full year, the Stamford, Connecticut-based cable operator added 155,000 high-speed broadband subscribers.
The company also lost 248,000 video customers in the fourth quarter, nearly twice what it lost in the fourth quarter a year ago.
Charter said its video customer losses were partly the result of losing programming from The Walt Disney Co., including ABC-owned stations and ESPN, in a September carriage dispute. The blackout cost Charter 327,000 video customers in Q3.
At year-end, Charter had 13.5 million residential video customers.
In the fourth quarter, Charter added 532,000 residential mobile lines, a slowdown compared to increasing mobile lines by 600,000 a year ago.
Fourth-quarter net income fell 11.5% to $1.06 billion, or $7.07 a share, from $1.2 billion, or $7.69 a share, a year ago. The company attributed the decline to a pension remeasurement loss and higher interest expense.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) grew 1.6% to $5.6 billion as operating expenses fell 0.7%
Revenue edged up 0.3% to $13.7 billion.
The earnings were below expectations and Wall Street was shaken by the number of broadband subs Charter shed in the quarter.
In morning trading, Charter’s shares were down 14%. The stock stayed down and closed at $319.21, down 16.5%, according to Nasdaq.
“Charter had warned that broadband net adds would be negative. But did anyone expect a loss of 61,00 subscribers? Consensus was (inexplicably) still slightly positive. Until expectations and results for broadband net adds come into better balance, nothing else matters. Nothing,” said analyst Craig Moffett of MoffettNathanson.
“Charter’s disappointing Q4 net add total came despite rapid rural expansion (new disclosure that confirms that their rural expansion strategy is performing very well). But that only makes the implied result in their legacy footprint all the more worrisome,” Moffett said.
Wells Fargo analyst Steven Cahall said the firm downgraded Charter to "equal weight" from "equal weight/overweight" with the stock-price target moving to $340 from $460. Part of the problem is a "much tougher" broadband environment, Cahall said, and Charter reported it has about 5 million customers receiving Affordable Connectivity Program subsidies from the federal government, customers who are relatively more likely to disconnect at some point.
Residential internet revenue rose 3% to $5.8 million. Video revenue dropped 8.1% to $3.9 billion. Mobile revenue jumped 35.7% to $626 million.
Fourth-quarter ad sales plunged 23% to $428 million in a non-election year. Excluding political sales, ad revenues were down 0.7%.
Programming costs dropped 10.6% to $296 million. Charter said that was because it had fewer video customers and more subscribers chose lower-cost packages.
Charter’s footprint expanded 2.5%, passing 57 million households, up from 56 million a year ago.
“Our rural footprint expansion is exceeding our deployment and penetration targets,” Charter president and CEO Chris Winfrey said. “Our network evolution and convergence efforts remain on course. And we are beginning to see the benefits of investments in our employees and digital service to improve the customer experience. We are executing on a clear strategy to ensure we offer consumers the best products and services, all while saving them money. Not only now, but in the future.”
