Value Line recently initiated coverage of Charter Communications (CHTR) in its flagship product, The Value Line Investment Survey. Based out of greater St. Louis, it provides cable television, high-speed internet, and telephone services. Founded in 1993, the company employs nearly 17,000 workers across the country. As of 2011, Charter generated over $7.2 billion in revenues and was the fourth biggest cable and internet provider in the United States, behind Comcast (CMCSA), Time Warner Cable (TWC), and Cox Communications.
Charter and its industry peers have long-controlled the way in which the public consumes a variety of media, from watching television to sending emails to making landline phone calls. The company makes a large portion of its revenues by offering packages, or “bundles”, in which the consumer can pay one monthly or yearly rate for a combination of the aforementioned services. Nearly 80% of its 5.2 million customers relied on the digital video package, which offers high definition and on demand options. This group comprised over half of total revenues for the year ended December 31, 2011. As many households, and nearly all corporate offices, need some or all of these offerings, Charter’s business model is sustainable for the near future. An improving balance sheet should support a return to the black in the next few years, as well.
A sea change in consumers’ viewing habits could also spell for difficulties in several years. As already-high pay-tv rates are set to double by 2020 on the heels of rising content-licensing fees, there exists a growing concern that consumers will flock to less-expensive and largely more convenient alternatives. Cross-platform streaming services, such as Netflix and Amazon Prime, generally cost a fraction of the average cable bill, and are increasingly competitive through their lucrative exclusive content deals with film and television studios like Disney and Sony. If networks can manage to make online streaming rates truly profitable, then telecommunications companies would need to find an innovative way to compete, thus abandoning the conventional bundle.
While we envision a gradual improvement in the company’s finances over the next few years, Charter has been embattled in recent history. After spending the majority of 2009 in bankruptcy, it has been mired with share losses and negative consumer reports. While its home territories in greater St. Louis boast an aggregated A+ from the Better Business Bureau, the company’s reputation is not so rosy in other regions. J.D. Power and Associates ranks the company among the bottom tier for customer satisfaction. It should be noted, however, that this is not a Charter-specific distinction; cable and internet providers as an industry are consistently poorly rated in this regard.
Subscribers interested in owning a piece of this telecommunications services provider are advised to consult Value Line’s quarterly reports for Charter Communications, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.