Why Spectrum parent Charter’s stock just had the worst day in its history



Charter Communications Inc. shares suffered their worst one-day drop on record Friday as the company’s latest earnings illustrated continued pressures in the cable industry.

The company reported a net loss of 61,000 broadband subscribers, whereas analysts were expecting slight positive growth even as management previously suggested net additions would be negative.

Charter
CHTR,
-16.51%
said its subsidized rural customer growth has been faster than expected, but some analysts noted the flip side of this dynamic. It “only makes the implied result in their legacy footprint all the more worrisome,” MoffettNathanson analyst Craig Moffett wrote in a note to clients.

Shares of Charter fell 16.5% in Friday’s trading to log their worst single-day percentage decline on record.

Traditional cable providers like Comcast Corp.
CMCSA,
-3.51%
and Charter face rising competition from wireless players, which are pushing fixed-wireless-access (FWA) services to their subscribers. Verizon Communications Inc.
VZ,
-0.85%
and T-Mobile US Inc.
TMUS,
-0.44%
are among those offering internet service to customers built on their wireless networks. Additionally, Charter faces competition from fiber offerings.

See also: Comcast sheds fewer internet subscribers than expected while beating on earnings

“While we’re executing well on our long-term strategic initiatives and Spectrum One is working to drive mobile growth, internet growth in our existing footprint has been challenging, driven by, admittedly, more persistent competition from fixed wireless and similar levels of wireline overbuild activity,” Charter President and Chief Executive Chris Winfrey said on the company’s earnings call.

Bernstein analyst Laurent Yoon commented that “competitive intensity from fiber and FWA remains high, and challenges are expected to continue into 2024, despite rural penetration delivering ahead of schedule.”

He added: “If you want to feel depressed about cable, just listen to FWA leaders’ commentary on their plans over the next two years (and beyond).”

Winfrey, for his part, said that “the impact from fixed wireless is temporary,” in Charter’s view.

“Our internet product is faster and more reliable,” he said on the call. “Our pricing is lower when similarly bundled with mobile. Customer bandwidth needs continue to increase.”

Another issue spooking Charter investors is the company’s forecast for capital expenditures.

“Charter provided long-term capex guidance out to 2027 that is above our estimates and consensus in 2024 and 2025,” LightShed Partners analysts Walt Piecyk and Joe Galone wrote in a note to clients. “It begins to decline in 2026, but the range implies a capital intensity that is higher than the prior guide.”

What’s next for Charter? Bernstein’s Yoon thinks the company needs to focus investor attention on its financials rather than its subscriber performance.

“This simpler story would resonate better with cable investors with realistic expectations: grow [the top line] at low-single digits and expand margins slightly faster,” he wrote. “Comcast has successfully implemented this [investor relations] strategy (but a different set of challenges) and Charter should follow suit. Chasing subs is not a viable option near-term given the obvious headwinds.”

Yoon rates Charter shares at market perform, and he cut his price target to $414, from $425, in his latest note.

MoffettNathanson’s Moffett said that the company doesn’t need to reaccelerate broadband subscriber numbers dramatically to appease investors. Executives “merely need to show that broadband unit results are predictable enough, at a level reasonably close to zero or slightly better, to allow for focus on all the other good things that are happening,” he wrote — calling out wireless, growth in average revenue per user, and margins as among the positives.

But Friday’s earnings report “is a frustrating reminder that they aren’t there yet,” added Moffett, who rates the stock a buy with a $660 target price.

The results were enough to make Wells Fargo’s Steven Cahall change his stance on the stock, as he downgraded it to equal-weight from overweight.

Charter’s latest numbers “change our thesis,” he wrote, as he now expects a “much tougher” broadband environment. Meanwhile, the company’s free-cash-flow inflection “feels too far off.”

Cahall cut his price target to $340, from $460, in a late Friday note.



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