Credit: Cable TV companies are fighting cord-cutting with price hikes on broadband service, but the big question is whether those increases will come fast enough as premium video subscribers flee.
Cable stocks have plunged ahead of third-quarter earnings amid angst that more consumers are turning to internet TV services, like Netflix ( NFLX ), and canceling subscriptions to premium pay-TV packages.
Comcast ( CMCSA ) and Charter Communications ( CHTR ) report Q3 results on Oct. 26.
In a note to clients Tuesday, Morgan Stanley said that based on its own survey, cable TV companies hiked broadband prices by 12% to $66 monthly from a year earlier for customers that buy only high-speed internet and not a TV package.
"As video revenue growth is increasingly pressured, leaning on data pricing is tempting to sustain earnings," said Benjamin Swinburne, a Morgan Stanley analyst in a report.
Mike McCormack, a Jefferies analyst, in a report published last week, said Comcast and other cable TV firms will need to hike broadband-only pricing to $80 or more monthly to offset the loss of video subscribers. He says the average broadband price, including customers that buy a bundle of high-speed internet and TV services, is now about $49 monthly.
"Cable companies are likely to raise stand-alone broadband pricing in order to combat the EBITDA declines from downsizing," said McCormack in a report. "This practice is already evident and justified given the lack of a bundling discount. Based on our analysis, we estimate Comcast would need to raise stand-alone pricing to roughly $80 in order to break even from a profitability perspective."
He says that Comcast, in some markets, has brought in stand-alone broadband customers with $40 monthly promotions and has been able to hike prices to $65 monthly.
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Comcast shares have dropped 11% since early September when it forecast higher-than-expected subscriber losses in the September quarter, normally seasonally strong for cable TV companies. Cable TV and media stocks sold off last week when AT&T ( T ) preannounced third-quarter numbers, including the loss of 390,000 pay-TV subscribers. AT&T added 300,000 internet TV customers to soften the blow.
Comcast is still up nearly 6% in 2017, despite the recent sell-off. Shares slipped 0.4% to close at 36.47 Tuesday.
Charter stock is up 24% in 2017 but is down to about 360 from a high of 401 set in early August as speculation cools that it could be acquired. Charter lost 1.3% to finish at 357.84.
Shares in Altice USA ( ATUS ) have dived since its initial public offering in June. Altice went public at 30, with shares rising to 34 the first two days of trading. Altice lost 0.5% to close at 24.49 on the stock market today .
Netflix slipped 1.6% to 199.48. Netflix late Monday reported earnings that missed views, though subscriber growth beat expectations.
Analysts that cover cable TV companies hope that broadband subscriber additions will quell investor worries in the long term.
In a note to clients Monday, UBS analyst John Hodulik said: "Despite the hand-wringing over worsening trends in traditional video, we continue to believe cable is well-positioned given its broadband product."
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
