Cablevision Making Inroads at the High End - TheStreet

Cablevision

(CVC)

showed improved results for its fourth quarter, cashing in on stronger-than-expected growth in advanced services.

The results indicate the cable operator continues to recover from past major stumbles, particularly the technical difficulties that plagued its 2001 digital cable rollout and liquidity concerns that hammered the stock last summer.

The numbers also indicate that the company is managing to reap more revenue from advanced services despite declines in basic subscriber counts and basic penetration rates.

Shares in Cablevision, which hit a low of $4.67 last August, rose nearly 5% Tuesday, then headed back downward. In the early afternoon, the stock was down 9 cents to trade at $16.98.

Progress

The company provided guidance for full-year 2003 that was generally in line with analysts' forecasts, though the various numbers are complicated by charges and business changes, such as Cablevision's plans --

announced Monday evening -- to sell or shut down its consumer electronics retail chain The Wiz. The company operates New York City-area cable systems with nearly 3 million subscribers, cable channels including AMC, and the Madison Square Garden entertainment venue.

For the fourth quarter ended Dec. 31, the consumer cable system business -- the biggest of Cablevision's various operations -- reported revenue of $583.4 million, up 8.2% from pro forma numbers for the fourth quarter of 2001 but slightly below analysts' expectations. Companywide revenue of $1.15 billion for the quarter was up 3.8% from pro forma figures of one year earlier, but below the Thomson Financial/First Call four-brokerage consensus of $1.25 billion.

But high-speed data services and digital video drove up earnings before interest, taxes, depreciation and amortization -- a bottom-line yardstick commonly used to judge media companies.

For the consumer cable business, what Cablevision calls "adjusted EBITDA" -- which eliminates restructuring charges and certain compensation expense -- rose to $234.5 million in the fourth quarter, up 17% from year-ago pro forma figures.

Driving that figure were net additions of 90,000 high-speed data subscribers -- about 15,000 more than expected -- and 136,000 digital video subscribers, about 40,000 more than the company's guidance. The weekly pace of digital video subscriber additions, says Cablevision, tripled from the third quarter to the fourth quarter.

Though some analysts have predicted pricing pressure on cable modem service to counteract slowing growth, Cablevision executives said they were suffering no impact from lower-priced high-speed Internet service offered by

Verizon

(VZ) - Get Report

. Saying that in some communities 50% of homes passed subscribed to the company's data service, Cablevision executives said that their penetration rate could conceivably rise to 70% of households -- the same rate of penetration for Internet usage among all households, no matter what the speed.

For 2003, the company is predicting basic subscriber growth of 0.5%, a turnaround from the 1.5% decline in 2002. Two-thirds of the 45,000 decline in 2002, said Cablevision, could be traced to the company's dispute with the

YES

sports channel, which eliminated Cablevision's carriage of Yankees baseball games. Capital expenditures for the company's telecommunications business -- the consumer cable operations plus business-targeted telephony and data services -- will drop from $1.1 billion in 2002 to $725 million in 2003, says Cablevision.

Worries

Excluding a bad-debt charge in 2002 related to the

Adelphia Communications

bankruptcy and results from The Wiz, Cablevision is expecting 2003 companywide revenue growth between 9% and 11% and adjusted EBITDA growth between 16% and 18%.

Lurking behind the stock's rise and fall Tuesday may be two different investor worries. Salomon Smith Barney analyst Niraj Gupta, for one, speculated in a postearnings report that the lower-than-expected fourth-quarter revenue may signal customers have been downgrading their service as they make the transition to digital video -- a trend he suggested would eventually reverse.

In addition, though the company has made good on last year's promises not to pour money into noncore, money-losing businesses, Cablevision showed no sign of stepping back from its plans to launch a direct broadcast satellite service by the end of the year. A satellite launch planned for the end of March will likely be delayed into the second quarter, according to Cablevision, apparently for technological reasons.