Insight Communications Co., the New York-based MSO, posted
major increases in revenue and cash flow for the second quarter ended June 30 -- the first
results since its initial public offering in July.
Insight raised $563.5 million through that offering,
selling 23 million shares to the public at $24.50 apiece. Insight's stock closed at
$29.50 last Wednesday.
Revenue during the period increased 84.4 percent to $46.4
million, and cash flow rose 74.5 percent to $22.3 million.
Insight attributed the increases to the completion of a
50-50 joint venture with AT&T Broadband & Internet Services last October, which
resulted in the addition of about 163,000 incremental customers served.
As part of that agreement, Insight won management rights to
several systems in the Midwest, including one in Rockford, Ill., with 65,000 subscribers.
The MSO has also been spending money to upgrade systems and
deploy new services like digital television and video-on-demand, launching its first
enhanced-services package in Rockford during the second quarter.
However, the company posted a net loss of $14.9 million, or
$1.07 per share, during the second quarter, compared with a profit of $4.1 million (11
cents) in the same period last year.
Revenue for the six-month period rose 90 percent, to $91.8
million from $48.3 million. Cash flow during the first half more than doubled, to $65.9
million from $24.5 million. Net loss for the period was $7.7 million, compared with a
profit of $4.1 million last year.
Insight has about 1 million subscribers in six states.
Deutsche Bank Alex. Brown analyst Doug Shapiro said
Insight's financial reports may not be indicative of actual performance for at least
a few more quarters.
He added that because more than 80 percent of the
company's revenue comes from two clusters -- Indiana and Kentucky -- and the Kentucky
deal (with InterMedia Partners) hasn't closed yet, different systems are still using
different accounting methods.
"Management is reluctant to put too much emphasis [on
the second-quarter numbers]," Shapiro said. "Because the bulk of the company is
going to be in systems they didn't own a year ago, they are not going to be the most
Shapiro added that Insight has shown increases in
subscriber growth, and its rebuild is apparently on schedule -- all good signs for the
"Everything looks good in terms of subscriber
growth," he said. "If you look at the underlying metrics, [Insight] looks like
it is in good shape."
SG Cowen Securities Corp. analyst Gary Farber said in a
report that he expects Insight to report above-average cash-flow growth next year based on
continued subscriber growth, greater penetration levels for new services and slight
improvements in consolidated cash-flow margins.
Farber forecast that Insight will have 17 percent cash-flow
growth in 2000, compared with the industry average of 12 percent. He also expects new
services like digital television and high-speed data to account for 25 percent of revenue
in 2000, up from just 3 percent in 1999. Cash-flow margins are expected to rise from 50.2
percent in 1999 to 51.2 percent next year.
For those reasons, Farber has set a $34 target price for
Insight's stock price has held its own since the IPO,
when it rose to as high as $30.25 per share on its first day of trading.
Shapiro said Insight's stock benefits from the fact
that it is one of the few remaining small-cap cable operators that are publicly traded.
"If you are a portfolio manager with a small-cap
emphasis, this is your only option to get into the cable industry," he said.
He added that although investors may see Insight as a
potential takeover target, he doesn't see that happening for at least five years.
"[A total of] 80 percent of the company is represented
by two joint ventures with AT&T," Shapiro said. "The idea of somebody else
buying them up is highly unlikely. But they possibly could sell a system here or