Cablevision Systems Corporation (NYSE:CVC) topped Q1 estimates but not enough to catalyze CVC stock’s share price past its 52-week high.
CVC’s strategy of steadfast pricing and prioritizing of certain customers over others boosted Cablevision’s revenue at the detriment of subscriber growth, which initially sent CVC stock down as much as 2% before closing 25 basis points higher.
The pace at which CVC is bleeding out customers quickens daily thanks to competitively priced services from Verizon Communications Inc. (NYSE:VZ), Netflix, Inc. (NASDAQ:NFLX) and Comcast Corporation (NASDAQ:CMCSA), among others.
To stay in the game, CVC is betting on data analytics and Wi-Fi.
Cablevision Earnings Play-by-Play
CVC topped the Street’s estimates by 3 cents with net income from continuing operations of 20 cents per share and revenue beat estimates by $20 million with $1.62 billion, a 2.5% increase year over year.
Cable net revenue came in at $1.452 billion, an increase of 2.4% over Q1 2014, which CVC attributes to “disciplined pricing strategies” in the face of threats from over-the-top services like Netflix and Sling TV from DISH Network Corp (NASDAQ:DISH).
There’s an upside and a downside to revenue growth in lieu of lost customers. The upside is straightforward: growing revenue in such a climate is a testament to CVC management. The downside, however, is a bit more nuanced.
Let’s start with the subscriber losses. CVC posted losses over the last eleven quarters, and this quarter was no different, with CVC’s video subscriber losses doubling that over the same period last year.
The most significant losses were in Cablevision’s video and voice services, dropping 28,000 and 14,000 customers, respectively. Compare that to Comcast’s loss of a relatively tame 8,000 video subscribers.
Despite CVC losing 118,000 video subscribers in total last year, subscriber loss hasn’t appeared to be the thorn in its side that it should be.
CVC video revenue increased this quarter to $801 million, about $8 million more than the same period last year and $13 million more than last quarter.
Well, this goes back to those “disciplined pricing strategies” mentioned in Cablevision’s conference call, which is code for a complete disregard of competition and an utter contempt for “smart shoppers.”
Basically, CVC vice chairman Gregg Siebert took an axe to subscribers that were shopping the promotions, dubbing them a “lower quality, lower profitability base of subscriber.” In short, CVC focuses on profitability over subscriber relationships, something Comcast has been relatively good at considering cable’s predicament.
To this tune, CVC increased average monthly cable revenue per customer roughly 5% to $155.34 over the prior year period.
And here’s where all this nuance comes to a head — investors are recognizing CVC’s attempt to squeeze its dwindling customer base for as much as its worth … a short-term trick and not a long-term solution.
The long shot for CVC, one that it needs to score big, is its bet on data, a business where it gained 7,000 subscribers over Q4.
CVC Banks on a Wi-Fi Future
In its conference call, CVC resolved to strengthen its Wi-Fi network (which it operates under Optimum Wi-Fi).
Cablevision’s COO Kristin Dolan laid out CVC’s plans for data and analytics, stating the signing of new clients and relationships with other IMSO’s on set-top box tuning data, as well as initiating Wi-Fi growth plans for its Freewheel service.
CVC’s Freewheel is a Wi-Fi replacement for traditional cellular service — allowing unlimited voice, data and text — but while Dolan claimed weekly orders for Freewheel are increasing and usage is around 20 calls and 70 texts a week per person, Freewheel is limited in that it is only available on one device, Motorola Solutions Inc‘s (NYSE:MSI) Moto G.
That’s slated to change when CVC releases its Freewheel app for iPhone and Android users.
CVC also was the first cable provider to offer HBO Go from Time Warner Cable Inc (NYSE:TWC), and Cablevision is now readying Hulu, LLC to beef up its “cord-cutter” package.
If it comes to choosing Cablevision stock or Comcast, here’s one last tidbit to chew on: CMCSA paid out nearly $600 million in dividends and repurchased 35.1 million shares in Q1, with plans to repurchase $2.5 billion worth in 2015, while CVC hasn’t increased its dividend in years and had no stock repurchases to speak of.
If you’re looking for value now, that makes a world of difference.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
