Altice USA Shares Fall Hard

Stock drops 22% in early trading Wednesday after disappointing Q4 guidance
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Altice USA stock, one of the top performers in the cable sector this year, fell more than 20% on Wednesday, the first trading day after the cable operator said it would report negative broadband subscriber growth in Q4.

Altice USA shares were priced as low as $24.56 per share in early trading Wednesday, down 22% or $6.57 per share. The stock was priced at $25.03 each as of 10:42 a.m. on Nov. 6, down $6.32or 20.1% each.

The stock fell hard after Altice USA reported flat earnings on Tuesday night, but analysts were most concerned about guidance for the fourth quarter, where the company predicted that broadband customer additions would be negative.

Revenue at Altice USA was essentially flat for the quarter at $2.4 billion. The company also reduced its year end revenue growth guidance to about 2.5% from the previous target of 3% to 3.5%.

In a research note, Barclay’s media analyst Kannan Venkateshwar said although the lower broadband guidance appears to be the result of promotional rolloffs, “it is not clear why this came as a surprise to [Altice USA] and wasn't part of its guidance. This raises obvious questions around operational visibility and growth quality which could temper expectations for 2020.

Altice USA CEO Dexter Goei said on a conference call with analysts Tuesday that the company’s sluggish Q3 financial results were due to expiring promotional offers, the absence of expected political ad revenue and a billing system change in its Suddenlink Communications systems that impacted gross subscriber additions.

“It just happens to be that we're hitting a vortex of a lot of the promos rolling off in the second half of this year,” Goei said on the call. “We saw some coming in Q3 but we're seeing an acceleration just in Q4.”

Related: Altice’s Model Behavior 

He noted that Altice USA added about 7,000 broadband customers in Q4 2018. And he expects the company to get back on track toward broadband subscriber growth quickly.

Dexter Goei, Altice USA chair/CEO

Dexter Goei 

“It's a significant percentage increase relative to last year,” Goei said of the expected Q4 decline. “But going into 2020 we're going back to a normalized level that we saw in 2018. So this is really a one time effect that we expect to see.”

Broadband growth has been one of the bright spots in the cable business and its continued growth has helped investors forget years of mounting video customer losses and cord-cutting. So any hiccups in the broadband growth story are likely to lead to skittish investors and a volatile stock price.

Evercore ISI media analyst James Ratcliffe added in a report that while the lower broadband guidance was expected to impact shares in the short-term, his long-term view of the company remains intact.

“Altice USA’s mixed 3Q19 results and lowered guidance for the remainder of the year (including negative broadband subs in 4Q19) likely to bring back some degree of investor uncertainty, but they don’t change our fundamental expectation that modest topline growth, incremental EBITDA margin expansion, and ongoing capital returns will drive robust Free Cash Flow/share growth going forward,” Ratcliffe wrote in a note to clients. “We’re trimming our 4Q19 topline and subscriber estimates, and slightly reducing our 2020E forecasts, but our overall forecasts are largely unchanged.”

Altice has been one of the top performers in the sector -- its shares were up about 90% for the year prior to Nov. 6 -- and the company seemed poised for stronger growth as it launched an aggressively priced wireless offering and a “price-for-life” campaign aimed at attracting retaining video and data customers. 

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