Time Warner Cable (
) recently released its Q3 earnings. As a result of continued ARPU
(average revenue per user) growth as well as reduced capital
expenditures, we have increased
our price estimate for Time Warner Cable's stock to
, which is about 12% below the current market price.
Time Warner Cable competes primarily with Comcast (
), AT&T (
) and Verizon (
) in both the pay-TV and broadband businesses as well as satellite
pay-TV providers like Dish Network (
) and DirecTV (DTV).
Market Share Gains and ARPU Growth
One of the key takeaways from its recent earnings is Time Warner
Cable's success in the broadband market. Besides continued momentum
gains, the company is also experiencing growth in
We now expect ARPU to reach $48 by the end of our forecast
period compared to $42 in 2009. If ARPU reaches $52 by end of our
forecast period, this adds about 7% upside to our current price
2 Key Drivers to ARPU Growth:
1) Premium Services
Time Warner Cable's broadband ARPU is benefiting from more
subscribers taking premium services. Subscriptions for its
service increased by 123,000 in Q3 while customers subscribing
increased by 4,000. These services increase broadband speeds for
its users for an extra charge to their monthly bill.
The company states that currently about 13% of its residential
high-speed data subscribers now have these premium
offerings. As premium tier subscribers are outpacing net
subscriber additions, we feel that penetration will increase for
premium tier broadband offerings.
2) 4G/3G Wireless Broadband
Time Warner Cable has also launched a combined 4G/3G wireless
service in New York City. This service can deliver speeds of up to
6 Mbps making it one of the fastest mobile broadband networks
available. Users can connect to this service using laptops,
smartphones or other wireless devices.
Although the company is offering data plans for as low as $20
per month (with 250 MB data cap), these are not likely to replace
its wire line broadband service. Instead, we believe this will
provide mobile aiding ARPU growth.
You can see
the complete $55.46 Trefis price estimate for
Time Warner Cable's stock here.