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Triple Play: The Paid TV Industry
Posted by: Vanina Egea (IP Logged)
Date: September 20, 2013 09:33AM

The media business is raising the competitive bar as services become integrated and more players enter the game board. As the triple play business model becomes standard, traditional phone, TV and internet providers look for possibilities outside their comfort zone. Here are three stocks that have diversified risks by wearing the triple play fashion. Let me look into Time Warner (TWC) and Cablevision Systems (CVC), and see how gurus feel about them.

New Strategy Pays Off

Present in 29 U.S. states through its 31 operating divisions, Time Warner is the second largest TV, Internet and phone provider in the U.S. The company's emphasis on technologically advanced services allowed it to build a customer base in excess of 26 million. Today, John Burbank, Larry Robbins and Steven Cohen are the gurus taking a stronger position in the company.

At the moment, Time Warner faces performance shortcoming as revenue failed to meet estimates, and total subscriptions continue on a downtrend since 2009. In part, tighter competition from traditional telecommunications firms offering fiber-based TV and broadband services have eaten away market share. Additionally, higher programming costs and a logged multichannel video market reduced operative margins and expansion opportunities, making performance improvements all the more complicated.

For the road ahead, Time Warner will further develop its new business model, characterized by a focus on broadband services for residential areas, penetration of the commercial business segment, and a new market strategy. Also, divestiture of its wireless phone segment is expected to improve overall performance. An extra push will come from an important growth in the business services segment, and a projected higher level of subscriptions for the broadband and digital phone segments. Most importantly, the company has recently introduced several novel products and WiFi access points have seen important increments improving overall service quality.

Time Warner is financially safe. Revenue and net income continue on a positive trend, while cash volume is stable, and operating margin stands at 20%. Currently trading at 15.6 times its earnings, packing a 24% discount to the industry average, the stock is undervalued. I share the guru’s optimism because current mix results evidence the positive effects derived from the new strategy.

Exhaustion, Debt and Innovation

Headquartered in Bethpage, Cablevision Systems is also a triple play company that operates in the New York metropolitan area under the Optimum and Lightpad brands. The firm is currently the eighth largest of its kind in the USA, and has expanded operations to the Mid-West. The latest news indicates that broadband speeds for Optimum customers will be increased at no additional costs. With respect to gurus, in this case Steven Cohen has reduced his position. However, more important are John Paulson and Mario Gabelli’s growing stake.

At this time, Cablevision Systems is facing a significant reduction on growth indicators as market penetration reaches exhaustion. Hence, product innovation and new markets will be a key for long-term growth. Additionally, competition continues to rise and Verizon´s soon to be released FiOS network is a strong contender to look out for. On the good side, divestiture has strengthened the firm, while dividend increments and buyback policies made the stock more attractive to investors. Those decisions are important to ease past managerial mistakes, and supports claims that average revenue per user continues to rise.

Ahead, Cablevision will be pressured by a customer base which demands higher technology, and is willing to pay for premium services. Since new technologies are associated with great investments, and future disbursement can be limited by current high debt levels, the challenge is not small. In other words, the firm has to reduce debt while financing capital investments, and at the same time avoid further customer erosion. Although the change in total subscriptions is not significant at this time, Verizon´s technologically superior FiOS network can complicate the situation.

Finances are moderate for Cablevision. The most relevant point here is debt, because it limits financial capacity for new capital investments at a time when competition continues to rise. Currently trading at 29 times its earnings, carrying a 26% premium to the industry average, the stock is overvalued. I share Steven Cohen’s pessimism because growth opportunities depend greatly from market expansion and introduction of new technologies. Both catalysts, however, require a strong investment and cash is not readily available, while debt is already high.


I prefer Time Warner over the other because of its geographic and portfolio diversification. The company has also developed a successful strategy to revert slow performance. And, innovation has granted the company an edge over the competition in order to secure future profits.

Disclosure: Vanina Egea holds no position in any of the mentioned stocks.

Guru Discussed: Steven Cohen: Current Portfolio, Stock Picks
John Paulson: Current Portfolio, Stock Picks
Stocks Discussed: TWC, CVC,
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