Cablevision Shares Plunge

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Cablevision Systems shares plunged more than 14% in early trading Friday, nearing a new 52-week low after reporting mixed third quarter results.
Cablevision shares dipped as low as $14.50 per share in early trading Friday - they were trading at $14.79 each at 12:18 p.m. Friday, down 14.6% ($2.52 per share) - nearing its 52-week low of $14.45 per share.
The drop comes a day after Time Warner Cable reported disappointing third quarter results and for some investors apparently refueled the debate that Cablevision's greatest growth days may be behind it.
In a research note before the stock market open, Sanford Bernstein cable and satellite analyst Craig Moffett noted that after several years of stellar growth, Cablevision's may be becoming a "victim of its own success."
The results were decidedly mixed. The Bethpage, N.Y.-based MSO continued to outperform expectations on subscriber metrics - basic video losses of 19,000 beat consensus expectations of losses of 30,000, and high-speed data growth (17,000) and phone customer growth (38,000) each outpaced consensus of 5,000 (HSD) and 19,000 (phone), respectively.
But financial metrics were another story. Cablevision reported revenue of $1.67 billion, up 8% and in line with consensus estimates of $1.69 billion, but missed widely on adjusted operating cash flow growth. AOCF for the quarter was flat at $539 million, well below consensus of $601 million.
The notion that its own success would catch up with it has dogged Cablevision for years. And after leading the industry in basic video penetration (59%), high-speed data penetration (53%), phone penetration (54%) and free cash flow yield (19%), it is a notion not entirely without merit.
On a conference call with analysts Friday, Cablevision CEO James Dolan tried to put the company's performance in perspective.
"Not all of our results in the quarter are where we want them," Cablevision Dolan said on the call. "By many measures we have built the most successful cable television company in the nation and have set nearly every industry benchmark for sales, customer retention, penetration, and financial performance. Continuing to build upon this historical performance has become more challenging in a highly competitive environment which is compounded by economic pressures including a significant decline in housing activity."
But Dolan stressed that there is ample growth ahead.
"We have taken pioneering steps to develop products and enhance our services for our customers without straining their wallets; we have sought and identified new markets that offer attractive growth opportunities to which we allocate a portion of our investable capital - both Optimum Business and Bresnan exemplify this," Dolan added. "And as importantly we have aggressively addressed the financial and capital structure of Cablevision to optimize long term shareholder returns through the refinancing of our balance sheet, the spin-off of MSG and AMC; and the allocation of our investable capital to our quarterly dividend, our stock buyback plan and highly strategic acquisitions. That said, our primary focus is the continued improvement of our product offerings, the quality of our services and the provision of the most attractive price value proposition in the market for our customers. Historically, Cablevision has confronted challenges in the constantly evolving business over multiple business cycles. We are highly confident that the same spirit of service, innovation and execution will guide us as we move forward."
On the conference call, chief operating officer Tom Rutledge said that results were impacted by several facts, including a retransmission consent fight last year with Fox broadcasting that prompted the MSO to implement a lower than anticipated rate increase, a decline in occupied households, sluggish home growth and higher programming and marketing costs.
On the programming cost side, he added that spikes in retransmission consent costs probably played the biggest role, but that they should moderate over time.
"I think the overall rate of programming going forward will moderate to some extent naturally," Rutledge said. "Right now we're absorbing the collapse of the broadcast model."
Rutledge noted that there is still demand for advanced services - Cablevision's triple play sell-in rate is about 74%, with half of those customers taking its Ultimate Triple Play package of 50 Mbps high-speed Internet service, voice and video.
"There are definitely cyclical pressures on the business, but over the long-term I think the business still has a lot of growth in it," Rutledge said. "There's continuing opportunity to sell the triple play package to residential customers, there's still a considerable amount of satellite penetration in our footprint, [which] ultimately gives us a path to additional residential growth [and] the opportunity for continued penetration of telecommunications services for the business environment continues. ...It is a cyclically challenging time, but the ultimate drivers are still in the business."

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