By Christopher Zara - Time Warner Cable Inc. NYSE:TWC, the country’s No. 2 cable provider, is expected to report higher first-quarter earnings on slightly higher revenue Thursday following months of aggressive promotional offers meant to boost its shrinking subscriber base and improve its per-subscriber revenue.
The New York-based cable and Internet provider is expected to show net income of $478 million for the period ended March 31, compared to $423 million for the same period last year. Earnings per share are forecast to rise to $1.68 per share, compared to $1.41 per share a year earlier.
Time Warner Cable’s revenue is expected to increase 3 percent to $5.64 billion, up from $5.48 billion a year earlier, according to analysts polled by Thomson Reuters. Time Warner Cable will report financial results on Thursday before the market opens. A conference call is scheduled for 8:30 a.m. ET.
The outlook is rosy given the company’s tumultuous 2013 -- a year marred by subscription losses and a high-profile battle over retransmission fees with CBS Corporation NYSE:CBS, which resulted in a month-long blackout of the network. According to Bloomberg, Time Warner Cable lost 215,000 customers in the three-month period ended December 31.
But the company’s narrative changed dramatically in February, when Time Warner Cable announced that it plans to merge with Comcast Corporation NASDAQ:CMCSA, the country’s largest pay-TV provider, in an all-stock deal valued at $45.2 billion. The deal is being described by analysts as a “friendly takeover” of Time Warner Cable by the larger Comcast. The combined company will gain control of about one third of the entire U.S. pay-TV market.
Initially, the news sparked investor concern about regulatory hurdles and a possible public backlash, particularly considering Comcast’s controversial 2011 merger with NBCUniversal, which faced fierce opposition from consumer groups and some federal regulators. Although Time Warner Cable shares jumped 6.8 percent on news of its pending merger, shares fell short of the $158.82 per-share value that Comcast had offered. As Reuters reported, that shortfall could indicate “investors’ worries about regulatory clearance.” At a Senate Judiciary Committee hearing in April -- which marked the beginning of the regulatory process -- opponents came out swinging, with many expressing concern that the merged entity would become an effective cable-industry “monopsony,” a buyer with enough power to push down the price it pays for programming, thereby squelching emerging content creators like (Netflix Inc. NASDAQ:NFLX).
Analysts are somewhat more optimistic. Vikash Harlalka, an analyst with International Strategy & Investment Group, wrote in an April 15 research note that if you’re planning on buying TWC shares, now is the time. “The deal spread with Comcast remains tight, suggesting the market is confident in the merger getting approved,” Harlalka wrote. “We prefer playing the transaction by buying TWC, as you get the assets at a 4 percent discount.”
Amy Yong, an analyst with Macquarie Capital Inc., wrote in a March 4 research note that regulatory scrutiny could delay the merger until early 2015. In the meantime, she wrote, Time Warner Cable is doing the right things by focusing on improved products like TWC Maxx, a service to increase bandwidth, and a new TWC app for the Roku streaming player. Wong expects Time Warner Cable’s average revenue per user (ARPU) is expected to rise 3.6 percent in the first quarter. “In the interim, it’s business as usual,” Wong wrote. “Time Warner management has a path to revitalize the business with better service, next-gen products like Roku and Samsung Smart TVs, and a market-by-market approach in its rollout of TWC Maxx.”
The wait-and-see approach appears to be the consensus. Out of 26 analysts polled by Thomson Reuters, 14 rated Time Warner Cable stock Hold. Time Warner Cable shares rose 1.83 percent Tuesday to $183.43.
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