Charter chairman and CEO Tom Rutledge tried to calm investors Friday as stock in the second largest cable operator in the country continued to spiral downward, telling analysts that he still sees growth in the business despite the turmoil created by over-the-top competitors.
Charter stock declined as much as 16% to $250.10 per share earlier Friday, a new 52-week low. The stock improved slightly later in the day – it was priced at $252.59, down $45.56. each or 15.3% at 11:38 a.m. But investor sentiment toward the stock appears to be shifting dramatically. One analyst on the company’s call Friday to discuss Q1 results, the stock’s decline hints that investors are beginning to lose faith in the Charter story.
Coming into quarterly results, most investors believed video losses would continue, but would improve. When they didn’t -- Charter lost about 122,000 residential video subscribers in the period, compared to the 80,000 most analysts expected – investors anticipated the worst.
But despite the market reaction, Charter’s subscriber losses were in line with its peers – Comcast, the largest cable operator in the country, reported a loss of 96,000 video customers in Q1 earlier this week, compared to a gain of 42,000 video subscribers in the prior year. Charter added video customers in the last Q1 as well, but investors have previously seen the company, almost two years after it completed the $80 billion purchase of Time Warner Cable, as seemingly ahead of the game.
With the ongoing digitization of its network – expected to be finished this year – innovative packaging and pricing and a wireless offering expected to launch in the next several months, Charter was expected to begin reaping the benefits. Now, investors seem worried the company is just like everybody else in the sector.
On the conference call, Charter chairman and CEO Tom Rutledge said the company’s vision hasn’t changed.
“We think we have a superior infrastructure that allows us to stand up more competitive products than alternative networks,” Rutledge said. “We have been successfully selling and marketing our product but at the same time going through a very complex integration of three very large companies to get to a single platform. That integration is actually going quite well and pretty much as planned; it has lumpy aspects to it as we combine the companies in various ways. But generally we are going exactly as we planned and creating the kind of future value that we expect to create.”
Rutledge called the next product introduction – a wireless service as part of its earlier agreement with Verizon Communications – is a “natural fit” with its other offerings and creates even more value.
“We think the Charter story is fully intact and getting better in terms of mobility,” Rutledge said.
The Charter chief acknowledged the sweeping changes in the video business, but he still believes there are growth opportunities.
“The changes in the video business, they are significant and hard to predict, but we still think there is video growth capability inside of our asset base,” Rutledge said.
But he also downplayed the significance of video subscriber growth, adding that profit margins for video customers are low.
“There is very little margin in the video business,” Rutledge said. “So whether you’re off by a million customers, its relatively immaterial to our plan. While we think we will make a great video product available to our customers and that great video product will continue to drive the overall connectivity business we have, if we’re off in our forecasts of that, it’s not significantly financially material to our growth prospects. I can’t explain market reactions, but our activity and our project management is going as we expected and the marketplace acceptance of our products is going as we expected.”