Charter Suffers Worst Rout in Nine Years as Subscribers Flee

(Bloomberg) -- Charter Communications Inc. suffered its worst stock plunge in nine years following dismal results, renewing concerns that the second-largest U.S. cable provider can’t hold on to TV customers.

The shares tumbled as much as 16 percent to $250.10 -- the worst decline since 2009, the year the company emerged from bankruptcy. The rout followed an 11 percent drop this year through Thursday’s close.

The results mark a troubling reversal since Charter’s last earnings report in February, when it added video subscribers for the first time in nearly two years and brought a glimmer of hope to a beleaguered business.

But this quarter, the Stamford, Connecticut-based company returned to what has become almost routine in the industry. Charter lost 122,000 residential video subscribers -- even more than during the same the period a year ago, when 100,000 disappeared.

“While financials were generally as expected, subscriber metrics were weaker,” Jefferies LLC analyst Scott Goldman said in a note. He had projected that the video-customer rolls would only drop by about 30,000.

Charter isn’t alone in struggling to hang on to TV customers. Earlier this week, market leader Comcast Corp. reported a loss of 96,000 video subscribers during the first quarter -- worse than the 60,800 drop analysts were predicting. It marked Comcast’s fourth straight quarter of video losses.

Charter acquired two other cable companies -- Time Warner Cable and Bright House Networks -- in May 2016. Since then, Chief Executive Officer Tom Rutledge has warned that integrating three companies into a single pricing and packaging strategy would mean losing customers in the short term. The hope is that the company can acquire longer-lasting subscribers over time.

But nearly two years later, the steep cable-TV losses are another sign of how new online TV providers, such AT&T Inc.’s DirecTV Now, are threatening the cable-TV business. DirecTV Now, an online service starting at $35 a month for 60-plus channels, added 312,000 customers this quarter.

Peers Tumble

Charter’s performance dragged down other cable companies on Friday. Comcast fell as much as 4.2 percent, while Altice USA Inc. dropped 7.8 percent.

The shift has forced Charter and its peers to find more growth in their broadband business. In other words, they’re more focused on being a supporting player to internet video, rather than the TV supplier itself.

The good news is Charter gained 331,000 internet subscribers in the quarter. While cord cutting may be eating into Charter’s TV business, the cable company still delivers the high-speed broadband needed for customers to stream Netflix and other popular online alternatives. But even on that front, there are some dark clouds. Charter added 23 percent fewer broadband customers than it did a year ago.

Dropping Users

Charter executives said Friday that a major factor in their quarterly loss of video and internet subscribers was disconnecting customers who didn’t pay their bills. They said the situation was temporary, and they expected trends to improve by the end of the second quarter.

Rutledge reiterated that the company’s integration strategy “remains on track,” noting its 5 percent revenue growth and 6.5 percent profit increase during the quarter. He said his goal was in part to deliver “fast, reliable bandwidth-rich connectivity products” -- a sign of how internet has become the main focus for the cable industry.

To contact the reporter on this story: Gerry Smith in New York at gsmith233@bloomberg.net.

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net.

©2018 Bloomberg L.P.