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Why Charter’s 3Q17 Earnings Missed Estimates

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Charter’s earnings in 3Q17

Charter Communications (CHTR) reported disappointing 3Q17 results with revenue, EBITDA (earnings before interest, tax, depreciation, and amortization), and free cash flow all missing Wall Street analysts’ average estimates. The telecom (telecommunications) company lost more than twice as many pay-TV customers as it had anticipated for 3Q17, reporting a loss of 104,000 customers. On average, analysts anticipated it would lose only 49,000 video customers. However, the company gained 249,000 high-speed Internet customers in 3Q17, which helped lift its Internet component sales by ~10.9% YoY (year-over-year).

In 3Q17, Charter missed Wall Street analysts’ consensus earnings expectations by ~81.4%. It reported EPS (earnings per share) of $0.19 in 3Q17 compared to $0.69 in 3Q16 on a pro forma basis. Its net income attributable to its shareholders on a pro forma basis fell from $189 million in 3Q16 to $48 million in 3Q17, driven primarily by higher D&A (depreciation and amortization) in 3Q17. However, it was partially offset by higher YoY adjusted EBITDA.

Charter’s adjusted EBITDA was $3.8 billion in 3Q17 compared to $3.6 billion in 3Q16 on a pro forma basis. Its adjusted EBITDA margin rose to 36.5% in 3Q17 from 36.2% in 3Q16.

Charter faces intense competition

In the cable industry, satellite broadcasters such as DirecTV and Dish TV (DISH) pose the greatest current threats to Charter due to increasingly intense competition. Earlier, in July 2015, AT&T (T) procured DirecTV, making it the biggest pay-TV provider in the United States (SPY). Charter has witnessed a reduction in the number of video customers due to low-cost, OTT (over-the-top) video services such as Netflix (NFLX) and Amazon (AMZN) Prime Video.

In the next part, we’ll look at revenue growth for Charter in 3Q17.

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