A maturing US cable market and a shift in consumer preferences have forced cable companies to re-strategize their business models. In order to tackle these issues, most cable companies are developing new and upgraded product offerings. In this article, I have picked three such companies which have recently declared their quarterly results. Let’s see what opportunities these companies provide after these results.
New product offerings will boost revenue
Its Universal theme-park division showed a 12.2% increase in revenue in the first quarter. Comcast Corporation (NASDAQ:CMCSA) acquired a 100% stake in Universal theme parks in February, a business which started in 2011. It reported first-quarter earnings of $462 million, up from $412 million for the same quarter last year.
Comcast Corporation (NASDAQ:CMCSA) is betting higher on this division as it is the most profitable of all. Revenue will rise further as Comcast has planned to open the new “Transformers: The Ride—3D” on June 20 and also “Wizarding World of Harry Potter” by the end of this year or next year. With strong recognition of these franchises, these rides are expected to bring more visitors to the park.
In the video-products segment, Comcast Corporation (NASDAQ:CMCSA) is gaining market share with its new X1 box. The offering works on the cloud and in big-data technology and allows customers to interact with their TV sets. The X1 box at present is available in about one-third of the company’s market but will grow to half of it by the end of the second quarter and will become nationwide by the end of this year.
The X1 set-top box has three tuners which allow the watching of one program and the simultaneous recording of two others at one time on its 500-gigabyte hard drive. Currently, it is available to the new customers who opt for triple play and the existing users who want to upgrade to this service. Moreover, the company plans to upgrade all of its 22 million set-top-box users in the long term.
Continuous growth with new market opportunities
DIRECTV (NASDAQ:DTV) faces the problem of a maturing US pay-TV market, where it is among the leading service providers with market share of 20.1%.The pay-TV industry is estimated to experience a decline of approximately 6 million users by 2017 as a result of market saturation, lower-income individuals, and due to changes in preferences of the young generation. However, it is also expected that DIRECTV (NASDAQ:DTV) will continue to gain US pay-TV market share through 2017 mainly by churn out from the other players.
In recent days, the company posted first-quarter earnings in which it reported net income of $690 million and revenue of approximately $7.6 billion, up 8 % year-over-year. An increase in subscribers in Latin America and increased revenue from the US boosted the quarterly results.
DIRECTV (NASDAQ:DTV) is focusing more on the Latin American market where there is low pay-TV penetration. In the recent quarter, DirecTV Latin America added 583,000 subscribers, bringing the total number of subscribers to 10.9 million. The region provides higher margins in comparison to the US and is expected to offer solid growth prospects. It also added 21,000 U.S. subscribers, which brought the total to 21.1 million. It is expected that DIRECTV (NASDAQ:DTV) will add more than 7 million subscribers by 2017.
DIRECTV (NASDAQ:DTV) has a long history of share repurchases and has purchased almost $26 billion worth of shares since 2005. With good cash flow, the company recently declared a $4 billion share buyback for 2013 and is expected to be in a position to dedicate $4 billion per year for share repurchases until 2018.
Shift to a digital platform will drive profits higher
Time Warner Cable Inc (NYSE:TWC) reported quarterly results recently and posted $401 million in net income, up 5% from a year ago. Revenue came in at $5.5 billion, up 6.6% year-over-year. The company mainly gets revenue from its monthly subscription fees, advertising and on-demand pay-per-view programming.
In this quarter, the company has seen growth in its broadband and VoIP business, whereas pay-TV remained unimpressive. Time Warner Cable Inc (NYSE:TWC)’s broadband subscribers rose by 131,000 in the quarter due to the acquisition of Insight Communications in 2012 and that number is expected to grow in the future, too.
The gain in subscribers is also the result of the increasing demand for high-speed broadband services. High speed involves high prices and thus has increased the company’s average revenue per user to $46 per subscriber per month in 2012. This growth is expected to continue in the future as Internet users and prices charged alike are likely to increase.
On the other hand, Time Warner Cable Inc (NYSE:TWC) is shifting to a digital platform and giving various introductory offers to customers who are upgrading to digital from analog. Digital services provide higher profits compared to analog, so the company is pushing customers to upgrade to the digital platform.
Under this initiative, the company has partnered with Reality Interactive, a full-service digital-merchandising agency, which has launched eight “experience stores” recently around the US with plans to open nine locations by year end. Reality will serve as the digital media partner for Time Warner Cable Inc (NYSE:TWC), and will provide in-store demonstrations of the company’s digital-media offerings.
Conclusion
Cable television companies are benefiting from the increase in subscription fees, expansions into new markets and new product bases. Comcast, with its X1 set-top box, is attracting new as well as existing customers who will help the company to increase revenue and market share.
DirecTV is gaining traction in the Latin American region by focusing on increasing the pay-TV subscriber base. This has improved the company’s cash flow, which has led to profits for shareholders, as well. Time Warner Cable Inc (NYSE:TWC), with its new offerings in the digital surface, will have higher revenue. Therefore, I recommend buying these three stocks for long-term gains.
The article Three Cable Companies to Bet On originally appeared on Fool.com and is written by Madhu Dube.
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