Comcast Subscriber Loss Sends Cable-TV Stocks Tumbling

Economy, Housing, Competition Soften Sector

By Jon Hemingway -- Broadcasting & Cable, 10/27/2007 7:00:00 AM

Cable stocks were rocked this past week in the wake of industry leader Comcast’s third-quarter earnings report as jittery investors fretted over subscriber losses.

Comcast lost 65,000 basic-cable subscribers in the third quarter after losing 95,000 in the second quarter. The company fingered increased competition from satellite operators and telephone companies for the losses.

Comcast’s third-quarter revenue of $7.78 billion was slightly higher than Sanford C. Bernstein estimates, while earnings before interest, taxes, depreciation and amortization of $2.92 billion was 4.5% short of their estimates. Earnings per share of $0.18 were right in line with consensus analyst estimates.

The nation’s largest cable operator saw its stock trade through its 52-week low to close down 10% Thursday at $21.28 per share. It dragged the rest of the sector with it as anxious investors sent shares of many of the largest operators sharply lower.

“You’re seeing increased competition, and that is resulting in basic subscriber poaching across the board,” Kaufman Bros. analyst Todd Mitchell said. “It’s going to vary by operator depending where their exposure is and which synthetic telco bundle they are going against.”

The company also recorded slower growth in other subscriber metrics. High-speed-Internet net additions were 450,000 in the quarter versus 536,000 in the same quarter a year ago, while digital-video subscribers rose 489,000 versus 558,000.

Time Warner Cable also traded through its year low, sinking 8% Thursday to close at $29.40 per share. Charter Communications fell more than 22% (or $0.58) to close at $1.97, while Cablevision Systems dropped more than 4.5% to $29.40 and Mediacom Communications ended down 6.25% to $5.70.

As a group, the stocks bounced in the early market hours Friday but were trading mixed at press time. Charter and Mediacom held gains while the rest of the group was flat to slightly softer.

Sanford C. Bernstein analyst Craig Moffett believes there may be larger forces at work against Comcast. “Investors may be tempted to blame escalating competition, but the macro-economy likely is a more important factor in today’s results,” Moffett wrote in a research note.

He contended that telco competition is not a significant factor because it is available in just 4% of Comcast’s footprint and the company’s massive national reach is “too large to run away from the macro-economy.” Miami and Michigan were particularly weak areas for Comcast, both of which were hard hit by the housing-market fallout, Moffett said.

According to Moffett, Comcast’s financial results reflect the “predictability of overall growth within the cable business at this stage of the cycle.”