UPDATED with closing price: Charter Communications stock had its worst single-day loss since going public in 1999, dropping 18.5% Friday after missing Wall Street’s second-quarter expectations.
The Spectrum cable and broadband provider said its second-quarter adjusted earnings came in at $9.18 a share and revenue hit almost $13.8 billion. While revenue met analysts’ consensus expectation, the earnings figure fell way short of the Street’s consensus forecast of $9.58.
The plunge in Charter shares dragged down other stocks in the cable and broadband sector, with Comcast losing 5% and Altice USA shedding 9% on the day.
In addition to the profit miss, many investors are concerned about the risks of Charter’s pending $34.5 billion merger with Cox Communications. Shares in Charter have fallen 26% since the combination was proposed in May. The S&P 500 has risen 8% during that same span.
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Media billionaire John Malone’s Liberty Broadband owns 26% of Charter, but the latter company last year announced a plan to acquire the former in a deal projected to close later this summer. Warren Buffett’s Berkshire Hathaway and Condé Nast parent Advance/Newhouse also are prominent Charter shareholders.
CEO Chris Winfrey defended the Cox merger during a conference call with analysts, saying the company has a “proven” history of successfully integrating large-scale companies it has acquired, among them Time Warner Cable. M&A has been part and parcel of the traditional cable business, with Malone one of its foremost practitioners.
In a switch from past investor focus on declining pay-TV numbers, that part of Charter’s business showed improvement during the quarter. Asked about the state of Charter’s video business, which reached a crossroads two years ago ahead of a landmark distribution agreement with Disney, Winfrey said it remains a key strategic priority.
While the company is offering select “skinnier bundles” in response to customer price sensitivity and the unraveling of the traditional pay bundle, the CEO said the company is now providing $100 a month in added value by integrating various subscription streamers into TV and broadband packages. What is “most beneficial to us and programmers and, we think, to consumers is to have the full-fledged, expanded video product, because it has the most content in there, at the best value,” Winfrey said.
Charter reported a decline of 80,000 video subscribers during the quarter, far fewer than the decline of 408,000 in the year-ago period. Winfrey said the company is seeing lower churn rates and more customers upgrading to higher tiers in order to get bundled streaming access.
The company also has worked to get more sophisticated in trying to upsell customers at the moment they are interested in viewing particular programming, Winfrey maintained. “A good example of that would be the inclusion of Peacock now that they’re going to have 50 exclusive games” when NBCUniversal’s NBA rights deal kicks in this coming season,. he said. The Spectrum app and program guide “allows them to either activate a Peacock subscription, which is included for expanded video, or to upgrade into the full, expanded package from a skinny package.”
Similar app and guide pushes are already implemented with HBO Max, Hulu and Disney+, he added.