Digital, Data Drive Time Warner Cable's Q2

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Time Warner Cable maintained the strong second-quarter growth momentum shown by its peers Comcast and Cablevision Systems last week, reporting gains in digital, high-speed Internet and telephony customers.

Revenue was up 7% to $4.3 billion and adjusted operating income before depreciation and amortization (AOIBDA, a measure of cash flow) rose 9% to $1.6 billion. But the real story was the strong subscriber metrics the nation’s second-largest cable operator reported during what is typically a seasonally weak period.

Time Warner Cable beat practically every analyst’s estimate for the period, beginning with basic subscribers, where it lost about 9,000 customers, besting some estimates that it would lose as many as 45,000 basic customers. The operator also added 200,000 digital- cable customers (compared to 184,000 in 2Q07), 201,000 high-speed data customers and 251,000 telephone customers.

In a research note, Sanford Bernstein cable and satellite analyst Craig Moffett wrote that the highlight for the quarter was the strength in broadband additions, particularly in light of weakness in that product line for its telco competitors Verizon Communications and AT&T.

Moffett was also impressed by continued strong results on the telephony front.

“There is no sign of a voice market slowdown in TWC numbers,” Moffett wrote, adding that the 258,000 net additions reflect “the gathering momentum in their acquired Adelphia properties.”

But despite the strong results, the operator’s shares were hammered on Wednesday, dipping as low as $27.86 per share (down $2.04 each or 6.8%), before closing at $28.34 (down 5.2% or $1.56 each). The decline could be a reaction to the 4.9% ($1.40 per share) gain in the stock price Aug. 5, competitive concerns as Verizon Communications launches TV service in Manhattan and the company’s decision to reduce its year-end earnings guidance.

TWC reaffirmed its revenue and free cash flow guidance for the year – 9% and 40% growth, respectively – but lowered its earnings estimates from between $1.25 and $1.30 per share to between $1.10 and $1.15 per share due to costs associated with its planned separation from Time Warner Inc.

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