Charter Communications continued to expand its broadband spectrum internet packages and services in the first quarter, but at a slower rate than earlier in the pandemic. Americans have increased their investment in-home internet access during the last year, introducing additional networks or updating to higher speeds as work and play migrated online and a faster network became a requirement for many.
This has created an advantageous environment for the cable industry in the United States during Covid-19, with surging demand and operational leverage to be leveraged.
Charter Communications – Services
In at least certain areas of the majority of the United States, Charter operates the cable internet and television service under the brand name Spectrum. Although pay television remains under threat from customer cord-cutting, high-speed broadband contracts have been shooting off the shelf.
In the last four years, Charter gained 1.9 million residential spectrum internet packages users, bringing the number to 29.2 million. This covers the 334,000 jobs created in the first quarter, roughly in line with the consensus estimate on Wall Street. Additionally, the corporation dropped 156,000 cable television viewers, bringing the total to about 16 million at the end of the year. This was greater than analysts’ expectations of a 121,000-loss.
Charter’s Profit Margin Improvement
Charter’s profit margins improve as it connects subscribers to an existing network, and profits grow more than sales. This is because the marginal cost of each new subscriber is low for Charter, but the fixed costs associated with network maintenance are large. This confers significant operational control on cable providers
Thus, though Charter’s first-quarter sales increased by 6.6 percent to $12.5 billion, adjusted earnings before interest, taxation, depreciation, and amortization, or Ebitda, increased by 12.5 percent to $4.9 billion. This earnings figure would not include equity options or other one-time charges and benefits. Revenue was in line with analysts’ consensus forecasts, although adjusted Ebitda came in well ahead of expectations by around $200 million.
Earnings per share in the first quarter is $4.11, up 121% year over year but falling short of Wall Street expectations. In the third quarter, free cash flow increased 35% to $1.9 billion, roughly in line with forecasts.
“The Ebitda beat was helped in part by two things that will likely reverse over time: very low bad debt and market churn, and a Covid-related bonus adjustment,” New Street analyst Jonathan Chaplin wrote this. “The bad debt and churn impact were the bigger of the two, and when this reverses, it will come with faster subscriber growth—trade investors will be happy to make.”
Charter considers bad debt to be money owed by consumers that the corporation does not anticipate recovering. Churn applies to the monthly cancellation rate by consumers due to whatever reasons. Although people giving up spectrum internet packages is quite rare, there is still a possibility.
Charter’s Expansion of Subscribers
Charter’s subscriber expansion, Chaplin believes, would accelerate as industrywide turnover rises, owing to the company’s higher speeds and more affordable offering. As a result, Charter could prosper as more consumers move services every month.
CEO Tom Rutledge said that he expects churn to increase later in 2021 as the economy begins to stabilize and the pandemic recedes. However, this will result in increased operational expenditures, as well as costs associated with acquiring and setting up each potential client.
“That opens additional opportunities for us as a share taker, so we would like to see that,” Rutledge said.
Rutledge also spent significant time debating Charter’s cellular phone service during an important call. This is in accordance with a wholesale deal with Verizon Communications (VZ) for the provision of service on its network. Charter has been aggressively marketing the Spectrum Mobile plan as a package of its cable providers, offering significant savings on the national carriers. Additionally, it purchased broadband spectrum licenses and extended the public Wi-Fi network to compete with Verizon.
Subscribers tend to understand the service’s importance. Charter introduced 285,000 residential wireless lines in the fourth quarter, bringing the total to over a million over the past three quarters combined. Charter’s wireless market is not currently profitable, but it is on the verge of being profitable. Comcast’s (CMCSA) cable competitor Comcast also announced rapid growth in its Xfinity Mobile customer base, noting that the service achieved profitability for the first time last year.
So far, investors have become mostly uninterested in cable providers’ cellular services. This might improve, though, if the networks manage to expand at a faster rate than AT&T and Verizon and begin to generate revenue. However, whatever the case is, spectrum internet packages do not compromise on their service quality.
Investment Schedule by Charter
Charter invested $1.8 billion in construction projects and repurchased $4 billion in shares in the first year. Since the start of 2020, the shares have increased 38 percent, compared to the S&P 500’s return of 33% after dividends. The stocks of Comcast and Altice USA (ATUS) have returned 29 and 33%, respectively.