In a year where cable stocks have been hammered by fears that broadband subscriber growth has hit a wall, Comcast said it will double its share repurchase authorization to $20 billion, effective Sept. 13.

Comcast has already repurchased about $9 billion of its own stock. In January, the company raised its share repurchase authorization to $10 billion.

Comcast shares were up slightly (0.7%) on Sept. 14, rising 23 cents each to $33.69 per share in early trading. So far this year, Comcast shares are down about 32% ($15.78 per share).

Other cable stocks have been hit even harder as investors grapple with the slowdown in broadband subscribers that has plagued the sector. As a whole, cable distribution stocks are down about 40% this year, with Cable One down 39.6%, Charter Communications down 41.6% and Altice USA down 42.7%. ■

Verizon Communications shares dipped more than 3% Thursday after MoffettNathanson downgraded the stock to "underperform" from "market perform," and lowered his 12-month price target on the stock to $41 from $55 each, adding that the company is losing ground to lower pricing from AT&T, better 5G networks from T-Mobile, and the increasing threat of cable wireless. 

Verizon stock was priced as low as $43.91 in early trading August 18, down 3.2% or $1.13 per share, after MoffettNathanson senior analyst Craig Moffett wrote that two years after AT&T started its aggressive pricing strategy, Verizon has "seesawed between periods of promotionality and financial restraint, optimizing neither. They have recently pulled back sharply on promotions, a reversal of their approach in Q2, and have introduced a suite of lower priced plans instead. There are no easy answers."

Verizon shares closed at $44.19 each on August 18, down 2.5% or $1.15 per share. 

At the same time, Verizon appears to be losing the battle with T-Mobile, which still has the lowest pricing in the industry despite spending heavily to build out its 5G network. T-Mobile now has the largest 5G network in the country, a crown that used to be worn by Verizon.

Adding to the pressure is the emergence of cable wireless. Moffett noted that Comcast, Charter Communications and Altice USA added a combined 694,000 wireless customers in Q2, about 100,000 customers more than in the same period last year. Cable now accounts for more than 9 million wireless customers, still only about 3% of the market, but it is growing. And recently Cox Communications said it was beta testing its own wireless MVNO, which Moffett wrote "will only add to the pressure on the incumbents."

Also: Analyst Says it's Time to Take Cable Wireless Seriously 

Moffett's outlook isn't much better for AT&T. While the analyst maintained his "market perform" rating on the stock, he lowered his 12-month price target to $17 per share from $19 because of lower growth expectations. But Moffett raised his price target on T-Mobile to $174 each from $165, citing its strong growth prospects. ■

Barclays Group media analyst Kannan Venkateshwar downgraded his ratings on Comcast and Charter Monday in the wake of disappointing Q2 broadband performance, adding that the rapid growth of fixed wireless service from telcos may end up being more of a threat than cable operators think.

Barclays lowered the rating on Comcast to “Equal Weight” from “Overweight” and on Charter to “Underweight” from “Equal Weight,” citing their poor Q2 performance. In addition to non-existent broadband growth in Q2, video subscriber losses at both companies rose significantly during the period -- to 521,000 and 266,000 respectively -- reigniting fears of accelerated cord-cutting for traditional cable. While mobile subscriber growth for both Comcast and Charter exceeded analysts’ consensus estimates for the period, Venkateshwar split from his peers, doubting that wireless will be able to take up the slack. 

Broadband Forecasts Lowered Again

Venkateshwar noted that he now expects Comcast to add about 300,000 broadband customers this year, down from 1.4 million in 2021, and Charter to add about 200,000, down from 1.2 million additions in 2021. He said the debate has shifted to whether or not cable broadband subscribers will actually decline in 2023 and beyond.

The broadband slowdown has weighed on cable stocks for months. So far this year, Comcast stock is down 24%, Charter down 34%, Altice USA fell 35% and Cable One is down 22%. The sector probably will fall even further after Altice USA reports Q2 results on August 3. 

Most analysts have reduced their forecasts for cable broadband subscriber growth again in light of the Q2 results, with Wells Fargo Securities media analyst Steven Cahall cutting his estimates for Comcast and Charter nearly in half. 

Prior to the Q2 results, Cahall had estimated Comcast would add 688,000 broadband customers in 2022 and another 630,000 in 2023. Now, his estimates call for 298,000 residential additions in 2022 and 300,000 in 2023. For Charter, Cahall had estimated residential broadband growth of 499,000 in 2022 and 549,000 additions in 2023. Those predictions have been revised to 152,000 customer additions in 2022 and 295,000 in 2023. 

Fixed Wireless Threat 

The analysts pointed to the potential threat of fixed wireless -- T-Mobile USA added 560,000 fixed wireless subscribers in Q2, far exceeding consensus expectations -- and Comcast’s and Charter’s seeming indifference to that competition. In conference calls with analysts to discuss Q2 results, both Comcast chairman and CEO Brian Roberts and Charter chairman and CEO Tom Rutledge said they believe fixed wireless isn’t much of a threat. 

Roberts called the fixed wireless access Q2 performance a fluke, as excess capacity created a “temporary opportunity targeted at value-oriented customers.” And while he said FWA isn’t having any “discernible impact” on churn, he did acknowledge it was a factor in Comcast’s flat Q2 performance. Not exactly an admission of a threat, but close, even though he added that performance and capacity restraints will likely limit FWA’s overall penetration.

On the call, Rutledge appeared to dismiss the long-term impact of fixed wireless while admitting that it is “an issue affecting growth at the moment.”  

Rutledge said fixed wireless access’s impact is small when compared to Charter’s overall footprint. He said activity levels were the major driver for subscriber losses. And he said that there are other economic factors at play, including low housing occupancy and new construction because of supply chain issues.

“And so we're pretty optimistic, relatively speaking, that as the post-pandemic market activity levels return and normalize, that our share of broadband growth will rise,” Rutledge said on the call. 

Also: Analyst Says Telcos Better Positioned to Chip Away at Cable’s Broadband Lead  

But Venkateshwar warned that fixed wireless could become a factor very quickly, adding that if T-Mobile meets its guidance of 500,000-plus additions each quarter, it will be larger than Altice USA (the fourth largest cable operator in the country) by the end of next year.

Also: Broadband Slowdown Hasn’t Hit Bottom Yet, Analyst Says 

“It is tough to see this not impacting cable structurally when cable [broadband] net adds overall have been [about] 3 million in normal years and T-Mobile and Verizon alone could add 2 million to 2.5 million FWA subs a year,” Venkateshwar wrote. “This is even before the existing DSL base converts to fiber driven by government funding and AT&T’s fiber expansion, which we estimate will result in an additional 20% of cable footprint having fiber overlap.” 

Blame Game

Cable operators have mainly blamed the broadband growth slowdown on lower household moves, an excuse that the Barclays analyst is not buying.

“[T]his is a market share argument and it is not clear why this would drag growth down for the industry as a whole,” Venkateshwar said of slower housing moves. “While cable has gained share vs DSL over time and therefore lower moves would impact growth rates, it is mathematically impossible to get to negative growth as seen last quarter, purely on account of lower move activity. In addition, the decline in move activity is not new and has been going on for years and tends to worsen during recessions. Even if move activity recovers, there are new elements that are likely to reduce cable’s share of gross adds given fiber and FWA entrants.”

Going Mobile 

Other analysts have seemed to side, partly, with cable operators' view on fixed wireless access. In a research note Friday, MoffettNathanson senior analyst Craig Moffett said that while investors will likely focus on broadband performance for a while going forward, they will eventually come around to the thesis that wireless is the new growth engine for cable. According to Moffett, if video was Act I for cable operators and broadband was Act II, wireless is poised to be the industry’s third Act..

Charter added 340,000 wireless customers in Q2, ending the period with 4.3 million customers. Mobile now accounts for 5.5% of Charter’s total revenue. Though the segment isn’t profitable yet, once Charter’s CBRS offload initiatives are completed in the next few years, it will be more profitable than most could imagine, according to Moffett.

The same holds true for Comcast. The largest cable operator in the country added 317,000 wireless customers in Q2, ending with 4.6 million customers. Wireless makes up about 4.9% of Comcast’s total cable revenue and is growing at a 30% annual rate.

“[W]e believe wireless growth remains underappreciated,” Moffett wrote. 

Wells Fargo Securities' Cahall said the jury was still out on mobile valuations, and while unit economics are positive, they don’t yet exceed the cost of service. On the other hand, increased capital spending on wireless could make operators less  reliant on MVNO partnerships and more competitive with telcos. 

“Add it all up, and it's a very logical strategy, but we think the value is too uncertain at flattish adjusted EBITDA margins to offset the [broadband and capex] challenges,” Cahall wrote.

Venkateshwar also was impressed by cable’s wireless performance, but he added that any war between cable wireless and telco FWA will be won by the telcos. 

“Telecom operators have their own issues but their narrative around new revenue sources like FWA is more feasible, at least over the short term, because it is backed by significant capital investments in a fixed cost infrastructure that should provide operating leverage over time,” Venkateshwar wrote. “Cable companies on the other hand have no plans to invest in a full infrastructure based offering, but still believe they can do better with an MVNO model than operators elsewhere in the world have managed. This strategy makes sense to test out the market and launch a service, but to anchor [a] long term strategic pivot of the scale that cable companies are attempting on someone else’s network is not viable in our view.” ■

Do you want to know how bad it has been for cable stocks? So bad that even the apparent removal of one of the sector’s biggest albatrosses — the threat of net neutrality regulation — wasn’t enough to move the needle into positive territory as distributors, hampered by fears of slower broadband growth and stiffer competition, shed about 13% of their value in Q2. 

Overall, cable distribution stocks — Comcast, Charter Communications, Altice USA and Cable One — saw their collective share prices fall 12.7% during Q2. The biggest loser was Altice USA, which fell 25.9% between March 31 and June 30, as fears of another quarter of broadband subscriber losses took hold. Other stocks didn’t fare much better — Comcast was down 15.7% in the quarter, closing at $39.24 per share on June 30, followed by Charter (down 14.1%) and Cable One (down 11.9%). 

The stocks were down 48% for the first six months of the year, as a steep decline in Altice USA’s share value sunk the rest of the sector. Altice USA shares were down 42.8% for the first six months of 2022, followed by Charter (down 28.1%), Cable One (down 26.9%) and Comcast (down 21.2%).

(Source: Yahoo Finance)

A combination of fears that the slowdown in broadband subscriber growth will continue longer than originally expected, coupled with an overall market malaise (the S&P 500 entered into bear market territory in June), rising inflation and worries that the country may be headed into another economic recession all helped drive down stocks. For what it’s worth, every sector has had to weather some declines as the major indices have slipped over the past several months. The S&P is down 20% so far this year — its lowest point in more than 50 years -- while the Dow has slipped 15% and the NASDAQ Composite fell 30% in Q2. 

Also: Has Cable Broadband Hit the Wall?

Content stocks fared no better. Warner Bros. Discovery, the new entity created through the merger of Discovery Inc. and AT&T’s WarnerMedia assets, fell the hardest, down 46.1% for the quarter and closing June 30 at $13.42 each. The Walt Disney Co., home of the Disney Plus streaming service, dipped nearly 31% during the period, followed by Paramount Global (down 34.7%), AMC Networks (down 28.3%) and Fox Corp. (down 18.5%). For the full year, Warner Bros. Discovery fell 43%, followed by Disney (down 39%), Paramount Global (down 18.2%), AMC Networks (down 15.4%) and Fox (down 12.3%).

Telcos Ride High

While cable distributors were feeling the pressure of slower broadband growth, telecom stocks like AT&T and T-Mobile rode high on speculation that their aggressive fiber buildout plans would continue to take share. AT&T stock was up 17% in Q2 to $20.96 on June 30, while T-Mobile rose 4.8% during the period. Verizon, which shook up cable shares late in June with a new pricing plan for unlimited broadband, was flat for the period. 

Dish Network, which launched wireless service in Las Vegas in June, dipped 43.3% in Q2, closing at $17.93 per share on June 30. 

It seemed like even good news couldn’t shift the gloomy sentiment around cable distributors stocks. Even a June 30 U.S. Supreme Court ruling that called into question a federal agency’s ability to regulate power plants, which could have the same effect on the Federal Communications Commission’s attempts to classify cable broadband as a Title II telecom service -- so-called Net Neutrality -- only lifted shares slightly. 

The sector as a whole yawned on June 30, up 2% after the ruling. Shares rose only another 1% on July 1, after investors had a full day to absorb the significance of the ruling.   

With Q2 earnings coming up in just a few weeks — Comcast is scheduled to report on July 28, followed by Charter on July 29 — investors will be looking closely at any deviations from the norm regarding broadband growth. Charter chief financial officer Jessica Fischer said at the Credit Suisse Communications conference June 15 that customers no longer qualifying for federal broadband discount programs could impact subscriber numbers by 60,000 to 70,000 homes. While Fischer said she still expects Charter to post positive broadband growth in Q2, it will likely be lower than what some analysts were expecting.  

In a June 17 research note, Wells Fargo Securities media analyst Steven Cahall noted that just when investors feel the cable sell-off is over, “a new negative data point hits.” 

“Valuations are near parity with Telco and that doesn't seem right to many given the structural advantages in broadband markets,” Cahall wrote, adding that Charter’s Q2 broadband commentary coupled with Verizon’s aggressive pricing suggest that the “estimate revision pain isn't over, and sentiment won't recover without some certainty around competition.” ￭

Cable stocks took it on the chin on Monday (June 13), as the S&P 500 fell into bear-market territory after investors opted to minimize risk as fears of the possibility of higher interest rates and other money-tightening measures came closer to reality.

The Standard & Poor’s 500 — which includes cable stocks like Charter Communications, Comcast, The Walt Disney Co., Fox Corp. and Paramount Global — dipped 3.9% on June 13, as inflationary fears spooked the markets. Investors appeared worried the Federal Reserve could raise interest rates in a move to slow down the economy after federal data showed consumer prices rose 8.6% year-over-year in May, its quickest increase since 1981.

The decline in the S&P 500 coincided with an 875-point (2.8%) drop in the Dow Jones Industrial Average and a 4.7% decline in the NASDAQ Index. The S&P’s Monday falloff brought the benchmark squarely in the bear market realm — down more than 20% since its January high — the first bear market in the U.S. since 2020, according to The Wall Street Journal.

Stocks across the board were hammered, but tech shares were hit particularly hard, with Alphabet, Meta Platforms (formerly Facebook), Apple and Amazon all falling between 4% and 6% for the day.

Netflix, which has been battling declines after it reported its first ever quarterly subscriber loss in Q1, saw its shares dip by 7.2% to $169.69 each. So far this year, Netflix has shed more than 70% of its value — the stock was priced at $602.44 per share on Dec. 31.

Among the biggest losers in the cable programming sector for the day were Paramount Global (down 8.1%), Warner Bros. Discovery (down 5.6%), and Disney. (down 3.7%). Distributors also were hit hard. Altice USA fell 7.5% to $9.25 per share, while Charter fell 4.2%. Cable One dipped 4.1% and Comcast slipped 3.4% for the day.

Streaming companies like Roku (-11.4%), fuboTV (-9.1%) and others were hit hard as well. Roku, a traditionally volatile stock in its own right, had been slipping in the past few days after a nearly 10% boost on June 8 as rumors swirled that Netflix was planning a takeover of the company. Those gains have been erased.

Telcos AT&T (down 4.5%), Verizon Communications (down 2.4%) and T-Mobile US (down 4.5%) fared better than satellite-TV service provider (and wireless newcomer) Dish Network, which fell 8.9%. Dish is in the middle of finishing out the first phase of its wireless buildout — the network needs to reach 20% of its footprint by the end of June — and launched service in Las Vegas earlier last month. ■  

Shares of The Walt Disney Co. sank more than 9% on Thursday, a day after the media giant said it added just 2.1 million new subscribers to its Disney Plus streaming service in fiscal Q4.

Shares in Disney fell as low as $158.34 on Nov. 11, down 9.2%, or $14.11 each. The stock was priced at $163.10 at 1:33 p.m., down 6.5% or $11.35 each. 

Disney said Wednesday night that it had added 2.1 million new subscribers to its Disney Plus service in fiscal Q4,  far below analysts consensus estimates for an additional 4 million customers in the period ended Sept. 30.

On a conference call with analysts, Disney CEO Bob Chapek said Disney Plus subscriber additions would be meaningfully higher in the second half of fiscal 2022 after new market launches and new original content in the pipeline take hold. 

“In total, we are nearly doubling the amount of original content from our marquee brands, Disney, Marvel, Pixar, Star Wars, and National Geographic coming to Disney Plus in fiscal year 2022, with the majority of our highly anticipated titles arriving July through September,” Chapek said on the conference call. He added that the goal is to more than double the 60 countries in which Disney Plus is currently available to more than 160 nations by fiscal 2023.  

But not all analysts were convinced that would be enough to meet Disney‘s targets. 

“Who is this consumer who wasn't interested in [Disney Plus] when it had the library and some original Marvel, Star Wars content, but will become interested when there is 2x the amount of the same brands of original content?” Bernstein media analyst Todd Juenger wrote in a note to clients. “We have yet to meet the child who says no to one scoop of ice cream, but yes to two.”

Barclays Group media analyst Kannan Venkateshwar added that while Disney said it would meet its Disney Plus subscriber guidance targets of between 230 million and 260 million paid customers by the end of 2024, that may be difficult to achieve. 

In order to reach the midpoint of that goal, Disney Plus would have to maintain its current pace of annual global subscriber additions of about 44 million customers. But that won‘t be easy. Venkateshwar noted that Netflix is only adding about 27 million paid customers per year on a content budget that is $3 billion to $4 billion higher than that of Disney Plus. 

“These goals seem aspirational to us given trends thus far this year,” Venkateshwar wrote. He added that Disney Plus had several new shows this year — WandaVision, Loki, The Mandalorian and The Falcon and the Winter Soldier — and has others in the immediate pipeline, including the much anticipated Book of Boba Fett, slated for a Dec. 29 release.

“Despite this, new market launches, more sports on services like Star+ (which is counted as Disney Plus from a sub perspective) and a recent price promotion, growth has been much slower vs required trend to get to guidance,” Venkateshwar wrote. “Therefore, it is not clear why the company is confident that growth will accelerate just on the back of more content.”

Still other analysts saw more content and more markets as enough to reach those goals. In a research note Evercore ISI Group media analyst Vijay Jayant estimated Disney Plus would add 48 million paid customers in fiscal 2022.

Morningstar senior equity analyst Neil Macker noted that Disney Plus added 44.1 million new customers in fiscal 2021, far outpacing Netflix’s 18.4 million additions over the same period. And he added that Disney Plus is only available in 60 countries, many of which were only added in the past year. 

“Even with the slower-than-expected subscriber growth this quarter, we still project robust long-term growth for the service,” Macker wrote in a research note. 

Comcast’s Q3 performance may turn out to be a bit of a double edged sword after all — on one hand, its 300,000 broadband subscriber additions came in at or above most analyst expectations, but its full year guidance implies that the fourth quarter may be a little worse than expected. 

Analysts initially cheered when Comcast said it had added 300,000 broadband subscribers in Q3, slightly better than consensus estimates of a gain of 296,000 customers. Strong gains in revenue (up 7.4%) and cash flow (up 10.3%) added to a feeling that perhaps the expected broadband slowdown won’t be as severe as earlier expected. 

Comcast cable CEO Dave Watson added to those good feelings on the Q3 earnings conference call Thursday morning, telling analysts that he sees a strong growth trajectory ahead.  

“The fundamentals of the business are very strong and there’s a very long runway of growth for broadband,” Watson said on the call. “We haven’t changed our view on the long-term trajectory of the connectivity business. I’m just as confident and optimistic about the prospects of this business than I’ve ever been.”

Watson pointed to Comcast’s past consistent performance — adding 1 million or more broadband customers each year for the past 20 years — and noted this year is no different. For the first nine months of 2021, Comcast has added a total of 1.1 million broadband customers, behind the 1.4 million added during the same period in 2020, but ahead of 2019’s nine-month pace of 963,000 additions.

“Our focus has not wavered,” Watson said. “While current visibility and overall current activity creates a little bit of modest risk, we still believe full-year net adds will be around 2019 levels.”

Watson was quick to point out that 2019 was Comcast’s second-strongest year in terms of broadband growth (2020 was No. 1), so to return to that pace points to continued momentum for the service. 

But Watson also noted that Comcast is adding fewer low-income broadband customers, which some analysts found surprising given government programs like the Emergency Broadband Benefit program (EBB), which subsidizes high-speed internet service for qualifying homes. And some pointed out that using 2019 as a goal implies that Q4 additions will be a lot lower than that same period two years ago. 

Comcast added about 1.4 million broadband subscribers in 2019, so hitting that target implies that the cable company will add about 292,000 high-speed internet subscribers in Q4 2021, according to MoffettNathanson principal and senior analyst Craig Moffett. That’s a big departure from Q4 2019, when the company added 442,000 broadband customers, and implies that the momentum may not be as strong as they think.

In a research note, Moffett wrote that in the “middle six months” of 2021 (basically Q2 and Q3) Comcast’s broadband subscriber growth was actually stronger than in the same period in 2019. According to Moffett, Comcast added 654,000 broadband customers in Q2 and Q3 this year, and 589,000 subscribers in Q2 and Q3 of 2019. 

Whether that slower implied Q4 growth (about 292,000 additions or greater) is due to “continued weakness in new household formation, slower incremental penetration gains or simply botched messaging is unclear,” according to Moffett.

Barclays Group media analyst Kannan Venkateshwar also noted that the 2021 guidance “implies that Q4 is trending significantly lower than 2019 levels,” and was somewhat concerned about the slowdown in low-income customers. In a research note, Venkateshwar wrote that decline implies that the low-income segment “contributed more than usual to growth over the last year due to government support programs, something we have flagged as a risk for some time.”

The Barclays analyst added that Comcast’s record low churn means that the slowdown isn’t due to competition, which could change over time.    

“The fact that the slowdown is largely on account of slower origination rather than higher churn means that the competitive impact of telecom isn’t being felt yet,” Venkateshwar wrote. “This, along with the fading impact of macro support programs, means that 2022 net adds may be further below the 2019 level than 2021.”

Watson wouldn’t give 2022 guidance on the call, again pointing to strong fundamentals and the continued, consistent momentum of the broadband business. 

But Comcast chairman and CEO Brian Roberts said the reduction in churn is proof that broadband is a very stable business.

“That’s what’s so great about the 32 million broadband customers that we have — we have a recurring business,” Roberts said on the call. “Maybe there was a pull forward, maybe there's a slowdown, time will tell. We’re looking at how we grow EBITDA, how do we grow margins, how do we maintain and offer more product connectivity, what more can we do with broadband, what will broadband be in the next five years." 

“It’s not some change in market conditions that we’ve all been reading about,” Roberts continued. “While it may be coming and there may be some of that, I actually think it’s the disruption of the pandemic coupled with a large percentage of Americans [that] have broadband. The question for us going forward is how do we continue to grow the value of that broadband and obviously therefore grow the value to our shareholders.”  

Investors appeared a little confused. Comcast stock was down about 5% ($2.55 each) in early trading Thursday to $49.89 per share, but rebounded later in the day to $52.74 (up 1%). As of 12:26 p.m. Oct. 28, the stock was trading at $52.26, down less than 1% or 18 cents per share. 

While broadband concerns are likely driving confusion, those fears could be all for naught. Moffett noted in his report that Comcast is notorious for reporting results that are “almost always precisely as expected, plus a smidge for good measure.”

So any fear of an even deeper slowdown could simply be a case of the “botched messaging” that led up to today’s Q3 pleasant surprise. 

The theory that the recent spike in fiber builds by telcos, coupled with lower prices for 5G and broadband products will pull cable companies into an ever-descending vortex of spending and price-cutting — the so-called Convergence Apocalypse theory — could be one of the reasons for the rapid decline of both telco and cable stocks in the past few months. But in a research note Thursday, MoffettNathanson principal and senior analyst Craig Moffett said that despite the threat of telco fiber overbuilds, cable still has a clear advantage.

Cable stocks have been hit hard as investors have been thrown into a tizzy after two top companies warned of slower than expected broadband subscriber growth in the third quarter. The first tremor was  caused by Comcast chief financial officer Mike Cavanagh on Sept. 14, when he told a virtual audience at the Bank of America Media, Communications & Entertainment conference that the cable operator was seeing a “little bit” of a slowdown in broadband subscriber adds in late August. Comcast stock fell more than 7% that day and the rest of the sector — Charter Communications, Altice USA and Cable One — saw their shares dip between 3% and 4%. 

The real impact came a few weeks later, when Altice USA CEO Dexter Goei said at the virtual Goldman Sachs Communacopia conference on Sept. 23 that broadband additions would  be negative in Q3 — to the tune of 15,000 to 20,000 in subscriber losses — blamed in part on what he said was a sluggish back-to-school period. 

Also Read: How Slow Will The Broadband Slowdown Be? 

Altice USA stock fell 13% to $22.06 per share on that day, and has had a steady decline ever since, closing at $17.62 each on Oct. 13. Other stocks like Charter Comcast and Cable One also felt the pain, as analysts began to rethink their models to account for what they saw as an accelerated slowdown in growth. At the same time, some analysts were rejiggering their outlooks on telco stocks, especially those that have made commitments to expand their fiber networks like AT&T, Verizon Communications and Frontier Communications. 

Also Read: Analyst Says Telcos Better Positioned to Chip Away at Cable’s Broadband Lead

In a research note Thursday, Moffett wrote that both the cable and telecom sectors are getting crushed in the market. Cable distribution stocks are down 16.8% since Sept. 1 and telco stocks like AT&T, T-Mobile, Verizon, Frontier and Lumen Technologies have fallen a collective 10.5%, mainly due to the belief that as telcos build out more fiber and lower prices for broadband, cable subscriber additions will suffer. Conversely, as cable companies drop prices for wireless service, as Comcast did it in August and Charter did earlier this week, that will lead to a long-term slide in telco wireless customers. 

“In this dystopian converged future, there are no winners,” Moffett wrote. “There is only mutually assured destruction.”

But like any other good conspiracy theory, there is some truth to the thesis — telcos are expanding fiber builds and cable operators are dropping wireless prices — and some not so truthful assumptions. For example, Moffett believes that “Convergence Apocalypse” adherents are forgetting a few key components of the thesis, particularly timing and coverage. 

According to Moffett, telcos have targeted an incremental 5 million homes with fiber overbuilds this year, or about 4% of the country. Next year that effort will expand to an additional seven million homes, or 5% of the U.S. By Moffett’s estimates, the percentage of cable plant overbuilt by fiber will grow from 30% currently to about 55% in the next decade. 

“The delays in passing a home, subsequently making the broadband service available for sale, and then actually connecting it, make clear that the competitive impact of this year’s tranche of homes newly passed will only begin to be felt next year, and even then only modestly (we’ve heard arguments that Comcast’s warning of “a little bit of a slowdown” in their Q3 numbers is an early sign of the new fiber overbuilds, but that is not remotely plausible),” Moffett wrote. “And recall that new homes passed in 2020 were the lowest in a decade; it will be at least a few more years before the rolling average of homes passed over the trailing four years or so is meaningfully above average.”

Moffett believes the immediate impact will be on wireless, as cable’s ability to bundle mobile and broadband service at lower prices has the potential to take significant share from the telcos. 

Cable can offer broadband throughout its footprint and wireless on a national scale. Telcos are limited in terms of bundling on which parts of the country they offer fiber broadband. For Verizon, that’s about two-thirds of its footprint or 11% of the country and for AT&T, about one-third of its footprint or 13% of the U.S. T-Mobile, Moffett wrote, has no fiber at all. 

What has been holding  cable wireless back in the past has been pricing, but that changed six months ago when Comcast dropped its family wireless plans to $30 per line per month for four lines or more of unlimited service. Charter introduced its new pricing -- $29.99 per month per line for two or more lines of unlimited service -- and it could be a game changer for the company.

Also Read: Analyst Says It’s Time to Take Cable Wireless Seriously 

According to Moffett, both the Comcast and Charter wireless plans are cheaper than those of AT&T, Verizon or T-Mobile, although the traditional telcos offer steep handset discounts the cable companies do not. But that is likely to change.

And then there is the cost.

According to Moffett, telcos are spending up-front, at-risk incremental dollars for their fiber builds, so in order to get return on that investment, they will have to achieve high penetration rates and high average revenue per customer. And while payback periods are typically between six and 10 years, if they fail to hit those targets or costs rise, the periods extend or become unattainable. In contrast, cable wireless is a variable cost business — operators only pay their mobile virtual network operator (MVNO) contract when their customers are using the service. As long as they price the service above that variable cost, they make a profit. 

Moffett pointed to a report he did years ago that argued that cable companies had the advantage in the coming convergence climate, a tenet he says holds true today. 

Why Wired Nets Hold an Advantage

“The argument was simple: it costs vastly more to put wires under a wireless network than it does to put a wireless network on top of wires,” Moffett wrote. “He who has the best (most ubiquitous) wired network will win. That cable doesn’t even have to bother building out facilities in low-value places — they can let Verizon spend that money on their behalf — only makes their advantage all the more dramatic.”

The analyst added that as the cable industry sees the mobile product as the best way to protect its broadband offerings, they will respond to increasingly aggressive telco fiber buildouts with equally aggressive wireless pricing. That strategy already appears to be working. Moffett estimated that cable is capturing as much as half of all wireless net additions within their broadband customer base even at the old pricing. 

Moffett added that the pressure on wireless could force telcos to make a decision — cut their dividend or reduce capital spending. That’s what AT&T was faced with in 2019. It cut capital spending and halted its fiber build in favor of the dividend, then reversed course in 2021, slashing its dividend and recommitting to improving the network.

But in the end, success in the wireless and broadband business is going to come down to price.

“[O]perators will have to pay customers, in the form of a discount, for the disadvantage of forced choice,” Moffett wrote. “Cable’s cost structure and infrastructure advantage allows for them to do that. Verizon’s and AT&T’s do not.”

Fueled by the inevitable slowdown of broadband subscriber additions, Wells Fargo media analyst Steven Cahall lowered his estimates on four cable distribution stocks, adding that as penetration rates rise and DSL competition sputters, the sector could be entering a period of diminished profitability.

Cahall reduced his estimates for Comcast, Charter Communications, Altice USA and Cable One on Friday, reflecting the slowing of broadband subscriber additions. While Cahall said that the slowdown is not a surprise: Most cable operators have warned for months that subscriber additions would be lower as pandemic lockdowns disappeared and workers returned to their offices. But Cahall wrote that adding to the pressure is increased penetration of homes with annual household incomes above $25,000 — now at about 100% — and the continued slide of digital subscriber line service. Cahall estimated that slower-speed DSL, a ripe target for cable broadband service, especially in rural markets, has seen its penetration rates dip from 25% about five years ago to 14% today. 

“So there is a lot less low-hanging fruit,” Cahall wrote.

Despite Altice USA’s admission that broadband adds will go negative in Q3, Cahall didn’t lower his rating on the stock — it stayed at “Equal Weight” — mainly because he doesn’t believe the company has much further to fall. But he did reduce his 12-month price target on the stock to $21 from $34 per share.

Other stocks weren’t so lucky. Cahall reduced his rating on Charter (to “Underweight” from “Overweight”) and his price target to $665 per share from $848. At Cable One, Cahall’s rating fell to “Equal Weight” from “Overweight”, while his price target dropped to $2,100 per share from $2,400. 

He kept his “Underweight” rating for Comcast, but reduced his price target to $41 per share from $49.   

Comcast said earlier last month that it expects broadband growth to soften in Q3, and Altice USA CEO Dexter Goei shook the market when he told a virtual audience at the Goldman Sachs Communacopia conference that the operator would lose between 15,000 and 20,000 broadband customers in Q3. Altice USA stock has been down about 24% since Goei made that statement on Sept. 23, and Cahall said it has in turn caused analysts to take a harder look at growth rates earlier in the year.

Also Read: Did Altice USA Cut Costs Too Much? 

“We're starting to see cracks in the growth story with recent management commentary from our coverage,” Cahall wrote. “Ultimately, we expect growth to decelerate from here as penetration is nearing its peak, competition is beginning to heat up in a meaningful way, and cable capex remains elevated.”

In his note, Cahall said that he now estimates that the Federal Communications Commission’s $3.2 billion Emergency Broadband Benefit program, which offers eligible residents up to $50 per month in broadband discounts, could account for as much as 20% of net broadband customer additions on an annualized basis. That paints a gloomier picture for future broadband growth -- most investors believe 2022 growth rates will be in line with 2019 performance -- Cahall wrote. He added that move churn, which helped operators in the first half of the year, could hurt them in the last half of 2021.

“We expect move churn to be up overall in 2022 due to pent-up demand from the pandemic,” Cahall wrote. “Along with more competition from fiber and fixed wireless, these analyses underlie our cuts to 2022-23 broadband net adds.”

Broadband Slowdown Foreseen

Overall, Cahall expects the cable distribution sector to add about 590,000 broadband customers in Q3, down 21.8% from his previous forecast of 755,000 additions. For the full year, he predicts cable broadband subscribers will rise by 2.9 million (down from his previous estimate of 3.2 million), slipping to 2.4 million additions in 2022 and 2 million by 2023. 

Also Read: How Slow Will the Broadband Slowdown Be? 

Altice USA is expected to take the hardest hit, adding just 6,000 broadband customers in 2021 (down from his previous estimate of 53,000 additions) according to Cahall’s estimates. Growth will pick up in 2022 to 62,000 customers (compared to 72,000 in 2019), slipping to 54,000 in 2023.

Charter Communications is expected to add 305,000 broadband customers in Q3 (down from previous estimates of 341,000) and about 1.31 million for the new year, slightly behind the analysts previous target of 1.375 million additions. At Comcast, broadband adds should be around 295,000 in Q3, down from his previous mark of 395,000 additions. Food the full year, Cahall now expects Comcast to add about 1.44 million broadband customers, in stead of the 1.645 million additions he previously predicted. 

Cable One, a pioneer in the broadband-only strategy that has spread across the sector in the past few years, should add about 10,000 broadband customers in Q3, in line with previous predictions, and full-year adds will be even with Cahall's earlier estimate of 167,000 additions. But growth will slow in 2022 and 2023, with Cahall predicting 31,000 and 32,000 adds for those years, respectively.  

Altice USA stock was up more than 7% on Thursday, slowly chipping away at the more than 20% hit the shares took in the past week, fueled in part by an analyst report that noted the company could be taken private at an even lower price than once believed.

Shares in Altice USA closed at $20.73 on Sept. 30, up 6.1% or $1.20 per share. Despite the gain, the stock, which rose as high as $21.05 (up 7.8%) during the day, is still behind the $25.26 price it traded on Sept. 23, the day before CEO Dexter Goei said broadband additions would be negative in the third quarter.

In a research report Thursday, Evercore ISI analyst James Ratcliffe lowered his 12-month price target on the stock to $30 per share from $44, maintaining his “outperform” rating on the shares but reducing his revenue and cash-flow estimates for the company as its broadband outlook declines. Other cable operators have said they expect broadband subscriber additions to slow as the positive effects of the pandemic wane. And though Altice USA does expect broadband additions to slide into negative territory in Q3, Goei said he expected to end the year either flat or slightly positive.

In his note, Ratcliffe said he doesn’t believe Altice USA’s challenges are insurmountable, but added that any solution will take time. 

“With that said, we don’t see any meaningful near-term catalysts for the stock, as we believe investors will need to see evidence of a return to subscriber growth for the stock to move meaningfully higher,” the analyst wrote. “For a long-term investor, however, we believe current levels can mark an attractive entry point for the shares.”

But perhaps the most shocking part of Ratcliffe’s report is the revelation that the remainder of Altice USA’s public float — about 43% of its total outstanding shares — is valued at under $4 billion. Given that low price, and past precedent, it wouldn’t take much for its controlling shareholder, Altice N.V. chairman Patrick Drahi, to take the company private. 

Also Read: Did Altice USA Cut Costs Too Much? 

Ratcliffe noted that Drahi took Altice Europe private earlier this year. By taking out the remainder of Altice USA’s public float at $30 per share, the company’s leverage would only increase to about 7 times 2022 estimated cash flow and still have significant free cash flow to pay higher interest costs. Even with Thursday’s price increase, a $30-per-share takeout would represent a 44% premium. 

Also Read: Analysts Search for Meaning In Altice USA Leadership Change 

Also in his report, Ratcliffe estimated that a $30-per-share takeout would cost Altice USA about $5.9 billion. At $45 per share, the total cost would be about $8.8 billion.  

Other analysts have said Altice USA could go private, with MoffettNathanson principal and senior analyst Craig Moffett estimating earlier this month  that the company sell off its Suddenlink Communications operation to partly finance the transaction.

Altice USA shares fell another 10% Friday as investors continued to rush for the exits after CEO Dexter Goei said the company would have to increase spending as Q3 broadband additions enter negative territory, causing some to call into question the company’s past aggressive cost-cutting strategy. 

Altice USA shares traded as low as $19.74 each on Friday morning (down 10.5%, or $2.32 per share), after a 12.7% decline on Thursday when Goei said at the virtual Goldman Sachs Communacopia conference that the company would lose between 15,000 and 20,000 broadband customers in the third quarter. The stock closed at $20.59 each on Sept. 24, down 6.7%, or $1.47 per share.  

“If perchance Altice USA CEO Dexter Goei MEANT to destroy his own stock yesterday, he could hardly have been more thorough,” wrote Bernstein media analyst Peter Supino in a note to clients Friday. “After stating that Altice would miss consensus broadband net additions for the third time in four quarters, Goei described a different operating and financial trajectory with less broadband ARPU growth, more operating expenses, more capital expenditure, and less share repurchase (maybe, probably, for now). This may have been the most thoroughly negative outlook we have ever heard.”

While operators have repeatedly warned that the COVID-fueled growth rates of 2020 will slow down in 2021, Goei’s comments hurt all the more because not only did they highlight that broadband performance not only could slow down but could turn negative, and that capital spending, on the decline as the focus of the cable business has shifted toward broadband, could rise. 

Also Read: Analysts Search for Meaning in Altice USA Leadership Change 

Goei didn’t say how much he expected expenditures to increase at the Goldman conference. Altice USA also is in a different situation than other operators because it is in the middle of a five-year fiber upgrade plan started in 2017. Already the company expects to pass about 1.5 million homes in its footprint with fiber by the end of the year, mostly in areas where it competes with Verizon’s Fios service. Whether it will extend that buildout to its renaming 1.5 million homes in the future remains to be seen. 

“Ultimately, we do believe that fiber is the technology, the winning technology going forward as opposed to improvements in DOCSIS technology," Goei said at the Communacopia conference, but he added that it is getting harder to find technicians that know how to build fiber networks.    

In a research note, Barclays media analyst Kannan Venkateshwar wrote that he believes Altice USA’s problems go beyond infrastructure. 

“We believe costs may have been cut too deeply in areas such as customer support and billing, which may need to be built back to match the footprint expansion,” the analyst wrote. “This is why the turnaround in operations may take a while to materialize.”

As far as its stock, Venkateshwar noted that Goei also said the company will slow its share repurchase program, a key component of its valuation. He added that Altice USA’s track record for multiple guidance cuts in the past two years and its inability to meet its short-term goals have threatened its credibility, which has also pressured the stock.

“Overall, we believe Altice USA is back to where it was at the time of its IPO with respect to gaining investor confidence,” he wrote. “It took management a couple of years of execution to gain investor attention post IPO, and in many ways, the company appears to be back in that cycle. Consequently, we do not see any good reason to recommend the stock.” 

Altice USA burst on the U.S. cable scene about six years ago, when it’s former parent Altice NV purchased Suddenlink Communications and Cablevision Systems in quick succession. Led by then chairman Patrick Drahi, an admirer of US cable legend John Malone, Altice USA believed it could squeeze profit out of what many said was a rapidly maturing industry by slashing expenses and imposing European-style cost discipline to the bloated U.S. cable business. 

While most analysts doubted that ability, Altice made good on that promise by removing $900 million in costs from its former Cablevision and Suddenlink businesses, later going public in 2017. But now, with its stock price falling sharply — it reached a new 52-week low Friday — some analysts are wondering if the company may be better off increasing its leverage to buy its remaining publicly traded shares, effectively abandoning the public markets altogether. 

At the Communacopia conference, Goei said that beefing up leverage is an option, but at least for the next three quarters, the focus will be on righting the ship. 

“We’ve got decisions whether we want to releverage the balance sheet at some point in time if we’re not getting rewarded for what we’re doing from an investments perspective, that we really believe in the medium-term results,” Goei said. “But I don't think that's a decision for us to make today.

“I think we’re focused, given the management changes, on making sure that all arrows are pointing in the right direction towards reinvesting in our business or accelerating our business, and that's what the focus is going to be over the next three quarters,” he continued. “Thereafter we can have discussions around what to do with our balance sheet, depending on how the market sees us.”

Also Read: Model Behavior

Goei said in part the Q3 loss was due to lower than expected gross adds and an “underwhelming”  back-to-school period And while some analysts noted the inherent seasonality of Q2 and Q3 in the cable business — typically that’s when customers move to summer homes and college students go off to school -- others weren’t buying it. 

“Explanations proffered by operators thus far for lower gross adds don’t really make much sense to us, especially given that telecom companies are actually seeing trends improve,” Venkateshwar wrote. “While some have blamed weaker back-to-school origination, most colleges in the U.S. are operating at close to full capacity and therefore it is not clear where this slowdown is coming from.”

Venkateshwar warned that “there are more shoes to drop,” pointing to eviction moratoriums expiring, fading unemployment insurance increases and the potential fallout from non-pay churn.

“[T]here is an unusual lack of visibility across cable industry unit growth trends, and given the fact that almost the entire residential revenue topline growth now depends on broadband relationships and the high proportion of fixed costs on the broadband side, valuation in the space could have more downside to reflect this uncertainty,” Venkateshwar wrote. 

Comcast shares fell more than 7% Tuesday after chief financial officer Mike Cavanagh told attendees of a virtual investment conference that high-speed internet subscriber growth is expected to slow in Q3, a move that sent other stocks in the sector downward and perhaps a signal that cable’s unprecedented broadband run is nearing the end. 

Comcast fell hardest — its stock fell as much 7.6% Tuesday and closed at $55.59 per share, down 7.3%, on Sept. 14 — but other stocks in the sector took a hit as well. Charter Communications shares closed at $761.86, down about 4%, or $31.21 each on Tuesday, while Altice USA shares fell 3% (82 cents) to $26.61 and Cable One dipped 4.1% ($81.84 each) to $1,908.16 per share. 

Investors have been worrying about a slowdown in the broadband segment for several months and most expected a steep slide in Q2, as the impact from pandemic fueled lockdowns began to wane. When that sharp decline didn’t happen — Q2 broadband growth was lower than the previous year but nowhere near the falloff expected — observers began to wonder if the business had a few more quarters of strong growth still left in it. 

At the virtual Bank of America Media, Communications & Entertainment conference Tuesday, Cavanagh said the company expects broadband growth to mirror 2019 levels, something he has also said in the past. But it was enough to spook investors, who have been waiting for the next shoe to drop in cable’s extraordinary broadband growth story. 

“What we’re seeing in the most recent past, the tail-end of August, is a little bit of a slowdown in the cable business,” Cavanagh said at the BofA conference. The CFO has been saying for months that investors shouldn’t count on the huge growth in 2020 to continue — Comcast added nearly 2 million broadband customers that year, compared to 1.4 million additions in 2019. In the first half of this year, Comcast has added about 815,000 broadband customers, slightly ahead of the 800,000 it added in the first half of 2020. Comcast’s biggest broadband gains came in the second half of 2020 — about 1.2 million additions, compared to 821,000 additions in the second half of 2019 — so a return to 2019 levels could be perceived as a big decline for the company. 

Analysts had expected Comcast to add about 397,000 broadband customers in Q3, down from the 633,000 additions in the same period last year but in line with the 379,000 additions in Q3 2019.

Comcast still believes it is on track to exceed 2019’s full-year broadband subscriber growth of 1.4 million, and analysts’ consensus estimates have the company finishing the year with 1.6 million broadband additions. 

In a research note, Wells Fargo Securities media analyst Steven Cahall wrote that the market’s reaction to Cavanagh’s comments highlights the volatility around broadband.

“Clearly, cable sentiment is fragile,” Cahall wrote.

While there remains a clear bull and bear case for overall broadband growth — bulls claim gaming, consumers working from home and products like virtual reality will continue to drive the need for speed, while bears point to ever-climbing penetration rates as proof the segment can't continue to grow at the same pace — Cahall is squarely in the middle.  

“Our bias is increasingly skewing negative for the group,” Cahall wrote, adding that he has been historically bearish on Comcast, cautious on Altice USA and sees Cable One as more insulated because of its mainly rural footprint. “We think one conference data point does not yet make the long-term trend for Cable, but our expectation is that sentiment for the space will continue to trend more negative.”

Cable distribution stocks were on a path to reverse their nearly 15% first quarter slide as June 30 approached, with the sector up a modest 4.5% through June 22, but got broadsided later in the month by fears that Comcast, the largest cable distributor in the country, would go on a buying spree. A week later, distribution stocks were up a collective 8%, nearly doubling the gains of the week prior, in part because tiny WideOpenWest agreed to sell off some systems in a pair of deals that in part highlighted just how wide the gap is between public trading multiples and a company’s actual value. 

Comcast stock was on a tear as the second quarter neared a close, up 7% between March 31 and June 22, nearly double its 3.7% rise in Q1. But after news reports on June 23 hinted that Comcast chairman and CEO Brian Roberts may be considering deals to boost its position in the streaming video business, including a “tie-up” with ViacomCBS or an outright purchase of Roku, the stock sank nearly 5%. The fear that Comcast would spend heavily on a big purchase -- some analysts estimated that it would have to spend at least $75 billion on any potential Roku bid -- cast a pall on an industry that had been riding high on substantial gains in its broadband business.

Also Read: Brian Roberts Speaks, Sort Of 

On the flip side of the coin, WideOpenWest stock has been on fire over the past six months -- rising 27.4% in Q1 and another 52.4% in Q2. At its close of $20.71 per share on June 30, the stock was up 94.1% from Dec. 31, when it closed at $10.67 per share.

Another stock that has performed strongly in the first half of the year was Dish Network, which despite pressure to build out its planned 5G wireless network by June 2023, was up 15.5% in Q2, building on a 12% gain in the first quarter. Dish is scheduled to launch its first market in Las Vegas in Q3. The satellite company launched a website -- Project Gene5is -- in June to let interested consumers know when the service will be coming to their town. 

In the meantime, Comcast has slowly crawled back, especially since a handful of analysts came out with reports putting a damper on the likelihood of a big Comcast M&A deal.  In the five trading days between June 23 and June 30, Comcast shares were up 2.3% to $56.78, not exactly their June 22 level of $57.63, but closer. The rest of the distribution sector, however, gained nearly 4% in that week of trading.  

While WOW is too small to make a big dent in the overall prices in the sector -- distribution stocks were up 7.8% in Q2 without WOW -- they may have a bigger impact going forward, as investors start to look harder at the gap between public stock values and private trading multiples. 

Nowhere is that more apparent than in the deal market. In the past year, two major cable systems deals have closed -- Stonepeak Infrastructure Partners $8.1 billion purchase of Astound Broadband and Cable One’s $2.2 billion purchase of Hargray Communications. Each of those deals were valued at 12.5 times forward-looking cash flow. Even WOW’s sale of systems in five markets to Astound and Atlantic Broadband in two separate transactions was valued at 11 times cash flow. In contrast, WOW’s stock has been trading at about 8 times cash flow, while bigger publicly traded operators like Comcast (10 times) aren’t faring much better.

In a research note Wednesday, B Riley Securities media analyst Daniel Day estimated WOW’s stock price would be between $33 and $34 per share if an 11 times multiple were applied. 

“[W]e expect that this morning's announced transactions will be a positive catalyst by highlighting the share price discount to the private market value of the assets,” Day said of the stock price. .    

In mid-June, distribution stocks had already erased the declines in Q1, as investors were still trying to figure out the impact of the pandemic on the overall business. Continued broadband growth in Q1 --- the numbers weren’t announced until late April and early May -- helped drive the stocks in Q2 -- Comcast stock, up 3.7% in Q1 gained another 6.3% by June 22, while Charter erased a 6.7% Q1 decine with a 12.7% gain in the same time frame. The same held true for Altice USA, which was down 14.4% in Q1 but managed to eke out a 4.4% rise by mid-June. Only Cable One, long the strongest performer in the sector, saw signs of levelling off, rising 1.6% in Q2 after a 17.8% decline in Q1. 

Despite the Q2 rise, distribution stocks are still behind 2020, when pandemic-fueled broadband gains helped drive the stocks -- falling a collective 7.6% in the first six months of the year. Comcast and Charter are still ahead of their Dec. 31, 2020 levels -- Comcast is up 10% so far this year and Charter is up 9.1% -- but it was not enough to erase losses at Altice (down 9.3% for the year) and CableOne (down 13.9% since Dec. 31).

FBN Securities media analyst Robert Routh said while investors may fear Comcast spending too much for a programming or tech asset, it could boost multiples by taking a page from an earlier playbook -- swapping systems with other operators to create bigger and more efficient clusters.

It’s a take on former Tele-Communications Inc. president Leo J. Hindery Jr. 's “Summer of Love” in the late 1990s, when TCI swapped and bought systems all around the country in a flurry of deals to better focus the cable company’s operations. 

Routh said a cursory look at a cable systems map could show potential swap candidates for Comcast, Charter and practically every other cable company. Regulatory fears would be virtually eliminated because in a swap, neither party gets bigger (or that much bigger), just more efficient. 

“If Brian [Roberts] doesn’t want to do a deal on the content side, which I can understand at the moment, maybe it would make sense first to do some other deals with Charter and some other cable systems and get more contiguous clusters,” Routh said. “That would be a win-win, and should result in multiple expansion as we saw when it was done in the late 1990s.”  

Still, even without a system swap spree, Routh believes cable stocks should rise in the second half of the year. And he sees trading multiples getting beefier as investors realize the value in systems. 

“People are starting to realize that whether they like [cable broadband service] or not, I don’t know anybody who claims they don't need it,” Routh said. “...I do think we’re going to see multiple expansion as people realize that they [cable operators] are kind of unregulated utilities. They are necessary and even the wireless folks need them for the back hauling of the signal. That’s not going to go away. The question is, where do multiples go?”

For programming stocks, gains in the first quarter that were fueled by a combination of strong positive sentiment over streaming video offerings, and a bit of confusion, began to disappear in Q2. The overall sector rose 15.7% in Q1, goosed by a short-squeeze frenzy in February that swept up stocks like AMC Networks (up 48.6% in that period), Discovery (up 44.4% in Q1) and Fox (up 24.7% in Q1). 

ViacomCBS was the other big Q1 gainer in the sector (up 21.4%) but that was more due to the launch of its much-anticipated Paramount Plus streaming service. By Q2, that confusion had waned, sending the sector into negative territory, fueled by declines at one company in particular -- Discovery Inc. -- that just happens to be involved in a mega-deal.

Discovery shares were up about 44% in Q1, in part riding the short-selling wave but also fueled by sentiment around the successful launch of its streaming direct-to-consumer offering, Discovery Plus. On May 17, Discovery and AT&T announced a $43 billion deal where AT&T would merge its WarnerMedia content business into a separate entity with Discovery. Almost immediately the stock began losing ground. 

Discovery shares fell about 5% on May 17 and at its June 30 close, Discovery shares were priced at $30.68 each, down 14% from May 14. The stock was down about 29% for Q2. For the year, Discovery shares are up about 2% from their close of $30.09 on Dec. 31.

WarnerMedia parent AT&T’s shares were up 7.1% in Q1, but dipped about 3.3% in the second quarter. For the year, the stock is up about 3.6%. 

Routh sees a rebound for programmers going forward, especially in the wake of Amazon’s agreement to purchase MGM studios for $8.5 billion. 

“They’re all looking at what Amazon is doing,” Routh said. "I do think the tech giants are going to look at the content guys. I wouldn’t be surprised if you see bids made by some or all of them. The only downside is time.”

FANG stocks (Facebook, Apple, Netflix and Google) were up about 14% in Q2, led by Google parent Alphabet (up 22% in the period), Facebook (up 18.1%), Apple (up 12.3%) and Amazon (up 11.2%). Netflix was relatively flat (up 1.2%) as some investors continued to be worried about future growth opportunities and competition from rival streaming services. MoffettNathanson media analyst Michael Nathanson issued a report June 29 wondering whether Netflix may have to consider an ad-supported version or buying sports content to drive growth. 

Facebook got a reprieve from some of the intense government scrutiny it has been under this year after a U.S. District Court Judge dismissed suits by the Federal Trade Commission and 46 states concerning the social media giant’s alleged monopolistic practices. While the FTC and the states can file an amended complaint -- and they are expected to -- Facebook stock, up 27.3% in the first half of the year, second only to Alphabet (up 43.1%), like the rest of the sector has been relatively unscathed. 

Cable distribution stocks overcame a scare earlier in the year — when the initial pangs of the pandemic drove shares down by double-digits — to finish 2020 up by more than 45%, while content stocks slipped as investors continued to weigh the impact of shifting to a streaming model.

Comcast, Charter Communications, Cable One and Altice USA all reported strong gains for the year. With just eight days left in the year, barring a meltdown of epic proportions, the sector will finish up 45.1%, lower than its 78% gain in 2019, but a healthy rise considering the pressures of COVID-19 and an uncertain economic outlook earlier in the year.

Cable One again led the pack with a 50% rise in its share price — Charter was second with a 33.5% increase — but all four stocks in the sector showed healthy double-digit increases. 

Comcast had the weakest performance of the distribution sector — 11.3% — but that was mainly because of its NBCUniversal content unit. Its cable division reported robust broadband growth. In Q3 it added 633,000 broadband customers, its biggest quarterly growth ever. Rounding out the admittedly short distributors list, Altice USA shares rose 32.1% for the year. 

“The trajectory of the cable industry over the past year is a simpler narrative. Up,” wrote MoffettNathanson principal and senior analyst Craig Moffett in a note to clients.

The full-year increases mark a big change in sentiment for the sector from earlier in the year. In the early days of the pandemic distribution stocks were hit hard. Altice USA fell 35% and Comcast, Charter and Cable One were all down around 20% each in the first quarter, a result of an overall decline in the Dow Jones Industrial Average and fears the economy would tank as COVID-19 spread across the country. 

Content stocks were also battered in Q1 with the sector down about 40% during that period. But unlike the distribution stocks — which rallied in the second half of the year — content companies, with the exception of The Walt Disney Co., continued to falter. 

Strong broadband growth — Comcast, Altice USA, Cable One and Charter all reported robust quarterly high-speed data customer gains in Q2 and Q3 — helped drive the stock up in later months. Not including Cable One, which actually saw its stock price rise 10% in Q1, the rest of the sector dipped 12% between January and March. But from then on, distribution stocks went on a tear, rising a collective 50% between March and December. (Cable One was up  35% during that same period. 

At the same time, content stocks that were not Disney continued to slide. Disney shares grew by 20% for the year — they rallied strong in the last three quarters of 2020 after a 33% Q1 decline — primarily on the back of its Disney Plus streaming service. Disney Plus has outperformed even the most optimistic expectations — it had 86.8 million global customers as of Dec. 10 and expects to have between 230 million and 260 million subscribers by 2024. Other content companies, most who unveiled aggressive streaming strategies earlier in the year — have yet to see the same effect.

ViacomCBS, which in June said it would launch an expanded version of its streaming service CBS All Access (renamed Paramount Plus) in 2021, saw its share price slip 14.3% for the year as investors appeared to be taking a wait and see attitude on the stock. An investor event to further detail those streaming plans is set for early next year. At Discovery, which unveiled a sweeping streaming strategy in December with its Discovery Plus product, the stock was down about 14% for the year. 

Other content companies with less pronounced streaming products — Fox and AMC Networks — also felt the sting of a lower stock price, with Fox shares down 24.2% and AMC dipping about 14.6% for the year.   

But cable operators, who were written off in prior years as pay TV subscriber rolls dwindled, found new life in their commitment to broadband service. While video subscribers are expected to continue to erode — Kagan, a unit of S&P Global Market Intelligence, has predicted pay TV will lose about 31.5 million customers by 2024 — broadband should continue to hum along, albeit at a slower pace. 

In a research note. Moffett predicted that the four top publicly traded cable operators (Comcast, Charter, Altice USA and Cable One) will add a combined 4.6 million broadband customers in 2020 (a 56% spike over the prior year). That pace will slow to 3 million additions by 2024. But Moffett stressed that he continues to be bullish on cable. 

Moffett noted that expansion plans by Charter and Comcast into the more rural part of their footprints, as well as Charter’s participation in the RDOF auction could help bolster broadband growth. Furthermore, rising profit margins and reduced capital intensity should help drive multiples for the stocks.

“In late 2019, we had argued that the market’s new heuristic will be to buy Cable at 9x and sell it at 12x,” Moffett wrote. “The COVID crisis only accelerated margin expansion, as more customers moved to self-installation and web-based self-service during the crisis. Even after two full years of upward revisions to margin estimates, the market consensus was too low in its forecasts for every one of the publicly traded cable operators in Q3.”

COVID-19 also helped accelerate the decline of video subscribers and the continued shift toward streaming services. While that is good news for pure-play distributors like Charter, Altice USA and Cable One, Comcast and AT&T, each with substantial content divisions, could see added pressure. 

AT&T has essentially thrown in the towel on distribution — its DirecTV unit has lost more than 6 million customers over the past x years — in favor of its HBO Max streaming service. For Comcast, the issue is a little more esoteric. 

Other analysts have called for Comcast to separate its distribution and content assets, either via a spin-off (more likely) or a sale (less likely). While Comcast has tried hard to show investors the value of its content units, declining affiliate fee revenue and a spotty ad market have added to the uncertainty. Comcast launched its own streaming service — Peacock — across the country on July 15 and as of Dec. 8 had 26 million customers. 

While streaming and virtual MVPDs have begun to take hold as the pay TV vehicles of choice for many consumers, analysts have warned there is a danger that subscribers will cancel their subscriptions once they finish binge-watching the most popular shows or their favorite sports' seasons end. Moffett estimated that a subscriber base that only stays with a service for 9 months out of 12 is the equivalent of losing 25% of its overall customers.  

“Again, this is a concern for media companies (yes, Comcast and AT&T) more than it is cable operators,” Moffett wrote. “Remember, the cable operators are infrastructure providers. As such, we’ve long argued that there are really only two risks to the Cable thesis: infrastructure-based competition to broadband, and regulatory risk.”

He added that infrastructure competition is mainly 5G offerings from wireless companies, which don’t appear to be an immediate threat. And regulatory concerns are minimal as well, with the main fear — a reclassification of broadband service to a Title II designation — increasingly unlikely. 

“...[W]e concluded that not only was a Biden Administration nothing to fear, it might actually turn out to be a positive for Cable. We still feel that way,” Moffett wrote. “...Cable still looks attractive as we enter 2021… notwithstanding fears of a possible broadband slowdown.”

The three major publicly traded cable distribution stocks, up about 34% this year as positive sentiment around broadband growth has driven shares, could be even higher if private valuations are considered, according to a report by Bernstein media analyst Peter Supino.

The three top publicly traded cable distribution stocks -- Comcast, Charter Communications and Altice USA -- have ridden a wave of strong sentiment fueled by even stronger broadband additions. But using data from a recent private equity purchase in the sector -- Stonepeak  Infrastructure Partners $8.1 billion purchase of Astound Broadband -- Supino believes that the stocks’ prices could be between 32% and 91% higher. 

Supino estimated that Stonepeak valued Astounds at about 14.1 times the broadband company’s estimated $576 million 2020 cash flow. Considering that Astound is essentially an overbuilder in most of its markets, faces stiffer competition and has no inherent synergies with its new owner, applying that same valuation to publicly traded cable stocks would result in some serious upside. 

Astound consists of four companies -- RCN, Grande Communications, Wave Broadband and EnTouch Communications -- with about 1 million subscribers  across eight states and Washington , D.C., and has about 23,000 miles of fiber in its network. Stonepeak partnered with Patriot Media, which had been running the systems for former owner TPG for years, to continue to manage the systems. The deal is expected to close in the second quarter or 2021.

“Astound's sale price appears to be highly relevant to Altice, Charter and Comcast,” Supino wrote. “First, Stonepeak does not appear to bring material operating synergies (adjacent sales, billing systems, real estate, etc.) to the deal, so ‘the price is the price’ (notwithstanding tax assets). Second, we believe that Astound's systems are frequently third-to-market ‘overbuilders,’ which means they participate in markets which are inherently more competitive than the average of the US cable industry. Third, we do not see major fat to cut—TPG has been the owner of Astound, so we believe that the organization is efficient.” 

Applying those multiples would lift Altice USA’s stock price, ($34.07 on Dec. 1) up 91% to $65 each; Charter would rise 32% from $662.25 per share to $876.70 each and Comcast would gain 47% from $51.02 per share on Dec. 1 to $74.90 each. 

After a second quarter that saw the top publicly traded cable companies report record broadband growth fueled mostly by stay-at-home orders during the pandemic, analysts are expecting a mixed third quarter, as video losses pick up and the torrid pace of high-speed data additions begins to slow. 

Pay TV shed about 1.8 million video customers in Q2, a record that was fueled by a combination of the pandemic, heavy satellite losses and the years-long shift toward streaming video. Broadband reached record highs in Q2 — Charter Communications alone added 850,000 high-speed internet customers in the period — again, driven by pandemic-related issues. While most analysts don’t expect that pace to continue, they do see strong gains for most operators.

Sanford Bernstein media analyst Peter Supino predicted Comcast, Charter Communications and Altice USA will add about 1.1 million high-speed data customers combined in the period — down from the 1.3 million added in Q2. At the same time, he expects their combined video subscriber losses to be about even with the prior period. 

Supino expected Comcast to add about 580,000 internet customers, up from the 340,000 it added to the rolls in Q2. Last month Comcast chairman and CEO Brian Roberts said he expected strong Q3 broadband gains for the company at the virtual Goldman Sachs  Communacopia conference, saying that Comcast had already added more than 500,000 broadband customers with less than a month to go in the quarter. 

Content Pressures at Comcast

At the same time, Comcast, which will report Q3 results on Oct. 29, has been under pressure from its programming business. In late September, activist investor Nelson Peltz’s Trian Fund Management said it had accumulated about $900 million worth of Comcast stock and has had “constructive discussions” with company leaders, but wouldn’t say what its intentions are. In the past, Peltz has pushed for board seats and asset divestitures in the companies he has taken a stake in, but Trian’s interest in Comcast is small (0.4% of outstanding shares) and the likelihood it could force meaningful change without a nod from Roberts (who controls 33% of the company vote) is low. 

Supino has been a big proponent of Comcast divesting its NBCUniversal and Sky programming units by spinning them off to shareholders. In a June 30 note to clients, he noted that Comcast stock “is demonstrably undervalued and that the pendulum of investor confidence now underappreciates Comcast's strategic intelligence and commitment to long-term value creation.”

Comcast, to be a great stock instead of just a good one, needs to rethink its content strategy and structure, he added.  

“The NBCU television, film and cable network businesses, which Comcast bought well and for good reasons in 2009, have more recently diluted shareholder returns through revenue shortfalls, expense growth, and deteriorating expectations,” he wrote. “Sky, for which Comcast paid a stunning premium in 2018, fell badly short of expectations even before COVID-19 ravaged it.”

Programmers in general have been battered by the pandemic and the move to streaming. Evercore ISI media analyst Vijay Jayant wrote in a research report last week that although ad spending trends bottomed out in Q2, he expected another 14% decline in Q3, driven by an uncertain upfront and falling volumes. The continued decline of pay TV subscribers is also expected to affect affiliate fees, which he predicted would continue to deteriorate, despite any lift caused by the return of sports. Jayant estimated that traditional pay TV distributors would lose about 2 million subscribers in the period, with virtual MVPDs like Sling TV, on a downward path over the past few quarters, would add about 1 million customers. 

While both analysts expected strong gains on the broadband side of the business, Barclays Research media analyst Kannan Venkateshwar warned that robust growth may not last for long. 

In a research note, Venkateshwar wrote that although new-home growth reached a record 2.28 million in Q2, that isn’t likely to be repeated, and broadband providers will have to count on projects to build out their footprint to drive high-speed data penetration. In addition, federal programs to boost high-speed internet availability in rural markets should also help drive the numbers.

“However, we believe that despite these factors, the second derivative of cable unit growth may start slowing in the next two to three years,” Venkateshwar wrote. “More immediately, growth seen in 2020 may also be more difficult to replicate in 2021 given the unique circumstances as well as the segments driving this growth.”

Broadband to Cool a Little

Cable operators should add about 4.3 million broadband customers in 2020, Venkateshwar noted, up substantially from the 3.1 million added in 2019. But he expects the pace of those additions to slow down to 3.1 million in 2021 and to 2.4 million by 2025. 

Supino is more optimistic, adding that while Charter won’t have the same performance it had in Q2, Q3 should be a period of strong growth. He predicted Charter would add 450,000 broadband customers and lose about 200,000 video customers in Q3. At Altice USA, broadband additions should be at about 60,000 in Q3 (down slightly from the 70,000 added in Q2), according to Supino. But the analyst added that he sees upside potential in its more rural Suddenlink Communications unit, which should be positively impacted by the RDOF program and other government efforts to bridge the rural digital divide.

“In the near term, we expect positive 3Q results to help rebuild trust with investors as we believe the underlying fundamentals bottomed in early 2020,” Supino wrote. “We believe that core residential revenue growth, sequential advertising recovery, a political tailwind and structural cost reductions all suggest compelling upside for 2H EBITDA.” 

Cable distribution stocks, battered by the fear that a prolonged pandemic would wreak havoc on their businesses, proved their resilience once again by clawing back from their low points in March to strong gains in Q2. And though some analysts expect the tide to rise in the second half of the year, they warn of a potential broadband pullback as people return to work could hurt the stocks in early 2021.

The four major cable distribution stocks — Comcast, Charter Communications, Cable One and Altice USA — all posted strong Q2 gains; Charter led the way with a nearly 17% gain in the period. The increase was a welcome change from the first quarter, when every stock in the sector hit new 52-week lows.

FBN Securities media analyst Robert Routh said COVID-19 helped cable on the broadband side because customers were working from home and, in some cases, their employers helped pay for higher-speed tiers. That could change once people start returning to offices.

“I don’t think you have to worry about it this year,” Routh said. “But after that, that’s what I’m worried about.”

A Case-by-Case View

MoffettNathanson principal and senior analyst Craig Moffett said investors are no longer looking at cable as an individual market sector. “There is no monolithic ‘cable sector’ anymore,” Moffett said. “Each company now has a different story to tell.”

For example, he noted Charter outperformed its peers in Q2 after showing better-than-expected video and broadband results, while vertically-integrated Comcast shares, despite a strong broadband showing, grew at a slower pace. Pure-play cable operators Altice USA (up 1.1%) and Cable One (up all year despite the pandemic), had varying results.

“Comcast has lagged Charter badly, not because its cable business isn’t as good, but because the rest of its portfolio is an albatross,” Moffett said. “Altice has struggled because it is so much more mature … making it harder to forecast long-term growth. And Cable One is just so inexplicably overvalued that it doesn’t really get discussed in the same conversation.”

Comcast, which still relies on cable distribution for most of its revenue (56% in Q1), was hit hard by declines at its NBCUniversal content unit. The rapidly eroding advertising market, declining pay TV subscriber rolls (which means less affiliate fee revenue for programmers) and the rise in streaming services have all helped batter the content sector. And though NBCU launched its own streaming offering (Peacock) in July to strong reviews, some analysts have called for Comcast to separate or spin off the content business to unlock greater value on the distribution side.

“A lot of investors I have talked to who own Comcast are upset because they think they would have done much better if there was some way to value the two separately,” Routh said.

Routh isn’t alone in that thinking. Sanford Bernstein media analyst Peter Supino wrote an open letter to Comcast chairman and CEO Brian Roberts at the end of June, pleading for a spinoff of NBCU and British satellite company Sky. Supino argued that spinoff would result in a doubling of the price of a pure-play cable Comcast stock in three years.

Content companies are facing growing uncertainty as streaming services proliferate and traditional pay TV distributors, which have pulled most of the freight regarding affiliate fees, lose subscribers.

Content Headwinds

That perception has proven itself in the stock prices of even the biggest programmers. While the programming sector improved its position during Q2 — five of the six stocks in the segment rose above their Q1 lows — many have just barely squeaked by.

The biggest, The Walt Disney Co., finished Q2 up 15.4% to $111.51. But even with one of the most successful streaming services (Disney Plus, with about 55 million global subscribers in June) Disney stock was still far short of its Dec. 31 close of $144.63. AMC Networks, down 38.5% in Q1, fell another 3.8% in Q2. Other stocks like ViacomCBS, which fell 66.6% in Q1 to $14.01, gained more than 60% in Q2. But at $23.32, it was still nearly half the price it was at the beginning of the year.

Wells Fargo media analyst Steven Cahall said in a note he expects Disney Plus to climb to 62 million global subscribers in fiscal Q3 and to 81 million by year-end. But he believes that torrid pace will slow down, estimating 95 million subscribers by 2025.

Even Disney Plus’s exponential growth won’t be able to stem the bleeding elsewhere. Cahall estimates that total revenue for Disney, which reports results on Aug. 4, will fall 39% in fiscal Q3 to $12.4 billion.

Cahall’s caution is proven in his $118 per share 12-month price target on the stock: it closed at $118.12 on July 23. He expects shares to “remain range-bound as very strong content assets offset significant end-market uncertainty.” 

The Dow Jones Industrial Average rose more than 1,600 points Monday, after some data showed the number of COVID-19 cases in parts of the U.S. and Europe were beginning to slow, a sign that perhaps lockdowns in those areas are working.

In the U.S., the death toll in New York City, one of the areas hardest hit, remained fairly steady at just under 600 for two straight days, even as the number of coronavirus cases continued to rise, according to the New York Times. In Italy and Spain, the number of COVID-19 patients is still increasing but the rate of new infections is no longer rising. 

That news appeared to lure investors back to the market. The Dow closed up 1,627 points, with all 30 stocks in the index showing gains. For cable stocks, the increases ranged from a 2.8% rise for WWE, to a 12.3% increase for Fox Corp.

The increases were across the board, but cable stocks still have a long way to go before they regain the increases they handed back to the market this year, as the COVID-19 outbreak drove down the Dow more than 20%.

On the distribution side, Cable One led the charge, rising 7.2% ($109.78 each) to $1,646.16 per share, followed by Comcast (up 6.8%), Charter (up 6%) and Altice USA (up 5.9%).

Dish Network led satellite and telco stocks on Monday, closing at $21.10 each, up 11.2%; while AT&T was up 7.2% and Verizon increased 3.7%.

Programmers were led by Fox Corp., which rose 12.3% ($2.75 per share) to $25.05, with ViacomCBS running a close second, up 12.2% ($1.51 each) to $13.94 per share. Rounding out the sector, AMC Networks closed at $22.65 each, up 10.1%; Discovery was up 7% to $19.64, The Walt Disney Co., gained 6.1% to $99.58 and WWE closed at $35.08, up 2.8%.

Even with Monday’s gains, distribution stocks (minus Cable One) were down 5.8%; and programming companies were down 40%. Telco and satellite stocks were still down a collective 21% for the year. 

As the coronavirus continued to obliterate the economy, cable stocks, less than three months after enjoying their best year in more than two decades, have given back all of those gains, with some stocks falling to their lowest points in years.

The Dow Jones Industrial Average has been on a seesaw since Feb. 20, with the markets losing and gaining thousands of points as sentiment shifted along with proposals for bailouts to counter the economic downturn accelerated by the COVID-19 outbreak. On March 18, the Dow fell 1,300 points (a three-year low), a day after a gain of more than 1,000 points and two trading days after the index saw its single largest point drop ever (2,997 points) on March 16. Since Feb. 20 the Dow has shed nearly 10,000 points — dropping from 29,220 to 19,893 on March 18.

Cable distribution stocks, which enjoyed a 78% gain in 2019 (their biggest increase since 1998), are now down a collective 21%. What’s most concerning is that the bulk of that decline has occurred in a little more than a month. Cable distribution stocks were on a pace toward a 16.5% gain until Feb. 20. Between Feb. 20 and March 18, the sector fell 32%.

Telco and satellite stocks are in almost the same boat. Between Dec. 31, 2019, and Feb. 20, the sector was up a modest 1.3%, fueled mostly by a 13% gain in Dish shares. But in the past five weeks, as Dish has fallen 54%, the sector lost 23% of its value.

The Dish decline, according to Moffett-Nathanson principal and senior analyst Craig Moffett, is tied to the satellite giant’s need to build out a nationwide wireless network. Dish agreed to purchase T-Mobile-Sprint’s prepaid wireless business as well as a swath of spectrum to build out a competing wireless service. Dish has said it will spend about $10 billion on that buildout, but many analysts believe that figure is low.

No Appetite for Big Plans

“The market’s appetite for big, expensive, and speculative projects has dried up,” Moffett wrote in a blog post.

The cable distribution sector was supposed to be the one to ride out the coronavirus scare the best. With millions of people confined to their homes for work, play and school, cable subscriptions were expected to be more critical than ever. And not just for broadband access for work and school. With restaurants, bars, movie theaters and anywhere else where more than 10 people can gather within a six-foot radius of each other pretty much off limits, a pay TV connection is for some their sole source of entertainment.

The downturn has puzzled many.

Moffett noted that cable stocks losing all of their 2019 gains “makes no sense.”

“There is simply no plausible argument that a cable operator’s business will be anywhere near as cyclically exposed as the broader economy,” Moffett continued.

And investors shouldn’t bank on all cable stocks being unaffected, he added. He pointed to Comcast: Although cable distribution makes up more than 50% of its business, the company has theme-park and movie-studio operations that are affected by the outbreak. And he sees four segments of the overall industry that will likely be hardest hit by the coronavirus — business services, local advertising, housing formation and broadband share gains.

“But none of these factors are close to alarming, and, again, none come anywhere close to the level of exposure of the average business to a deep recession,” Moffett wrote. “In short, the cable stocks, to us, look badly oversold.”

Shaky Ground Under Programmers

Programmers were on shaky ground to begin with — shares in the sector were down 11% between Dec. 31 and Feb. 20 — but went into a near freefall in the past four weeks, shedding 37% since Feb. 20. In 2020, the stocks are down a disappointing 44%.

Among the top decliners was The Walt Disney Co., which hit its lowest point in six years on March 18 ($79.07 per share) before rallying to finish the day at $88.04 per share, its lowest close in two years. Disney stock is down 39% since the beginning of the year.

Disney is facing a triple whammy from COVID-19. Besides having to shut down its theme parks and delay theatrical releases from its movie studios in response to the coronavirus, ESPN is without live games because of the league suspensions (see Programming, page 8).

MoffettNathanson media analyst Michael Nathanson estimated that Disney’s Media Networks division, which includes ESPN and its ABC broadcast network, could see a $250 million decline in cash flow for fiscal 2020 due to the league shutdowns. And that includes a $150 million gain from not having to pay for sports rights.

“However, this could prove to be much worse on the cash flow line if ESPN is forced to pay for sports rights in the short term in exchange for longer term solutions,” Nathanson wrote.

Those declines are nothing compared to the cratering of ViacomCBS shares, only four months removed from the merger that was supposed to right the floundering programmer. ViacomCBS shares are down 71% since the beginning of the year, as the programmer was hit hard by the loss of the NCAA men’s basketball tournament. Adding pressure on the shares is the possibility that its largest shareholder — Shari Redstone’s National Amusements Inc. — may have to sell shares to satisfy debt covenants for the parent company. NAI has said it does not believe it will have to sell ViacomCBS stock.

The stock market began the long climb out of a coronavirus-inspired hole on Friday, with the Dow Jones Industrial Average gaining nearly 2,000 points as investors began to seek out bargains after a nearly unprecedented decline, taking cable stocks along for the ride.

The Dow closed at 23,185.62 points on March 13, a 1,985-point gain, chipping away at a nearly 5,000-point decline in the index between Feb. 13 and March 12. The Dow entered into bear market territory March 11, dropping 1,600 points and ending an 11-year bull run as investors panicked over the potential impact of the worldwide coronavirus pandemic. The next day the index fell another 2,300 points, its worst day since the 1987 crash. 

But those fears began to ease March 13, especially after President Trump, who had issued a confusing European travel ban March 11 that sent the markets into a tailspin the next day, held a Friday press conference declaring a national emergency which would free up to $50 billion to help Americans fight the virus outbreak. 

That was enough to cause many investors to dive back into the market, and they did so with a vengeance. Cable stocks, hammered over the past few weeks as coronavirus cases mounted, began to rebound March 13.

On the distribution side, Comcast stock, down 24% between Feb. 20 and March 12, rose 12.6% ($4.39) on March 13 to $39.33 per share. Other stocks in the sector that had fallen by double-digits in the past few weeks also started to regain lost ground, with AT&T up 10%, Altice USA rising 7%, Charter up 6.2%, and Cable One gaining 6%.

Dish Network, down more than 50% between Feb. 20 and March 12, gained 8.8% ($1.74 each) on Friday, closing at $21.59 per share. 

On the content side, The Walt Disney Co., which lost 25% of its stock value between Feb. 13 and March 11, regained some of those losses, rising 11.7% on March 13 to close at $102.52 per share. AMC Networks gained 10.3% Friday while other stocks in the sector had more modest gains. Discovery closed at $22.89 each Friday, up 2.7%, while ViacomCBS was up 3% for the day. Fox was essentially flat at $26.15 per share.

The stock market started the week on a higher note, gaining nearly 1,300 points as investors placed bets that the central banks will help protect economic growth from any pitfalls caused by the coronavirus, dragging cable stocks along for the ride.

The Dow Jones Industrial Average closed Monday up 1,294 points (5.1%), its largest single day point gain on record, a reversal from the prior two weeks that saw record declines.  While the index still hasn’t fully emerged from the hole it created between Feb. 14 and Feb. 28 when it fell nearly 4,000 points (12%), it was a good start. And cable stocks, which took a clobbering last week along with the rest of the market, started to climb back up.

Comcast led distribution stocks with a 5.2% gain on Monday ($2.09) per share to $42.52 each, followed by Cable One (up 3.3%), Altice USA (up 1.4%) and Charter Communications (up 1%).

Telco AT&T was up 5.6% ($1.96) to $close at $37.18 for the day, which also coincided with the launch of its AT&T TV streaming service. Verizon was up 5.8% to $57.32 and Dish Network was up 2.4% to $34.33 per share.

On the programming side, Fox Corp., which was hammered last week as investors worried about companies with strong ties to Asia (the source of the coronavirus) gained 4.4% ($1.37) to close at $32.11 each. The Walt Disney Co. rose 2% to $119.98 each and Discovery rose 2.7% (70 cents) to $26.40 per share. Viacom was down 1.2% (30 cents) to $24.31, and World Wrestling Entertainment fell 1% to $46.36 to close out the day. 

For years, Wall Street heaped praise and lofty multiples on content providers, turning a jaundiced eye to the distributors that delivered that programming. For many investors, cable networks were the growth engines while distribution was a declining business that should best be avoided. In 2019, cable operators got their revenge.

Cable distribution stocks, fueled by continued strong broadband growth, grew 78% for the year, their largest gain in more than 20 years. The last time the distribution sector had a comparable gain (80%) was in 1998, according to Multichannel News estimates.

Although there are substantially fewer publicly traded cable distribution companies in 2019 (4) than in 1998 (10), today’s cable operator is facing competition on several fronts — satellite, telco and OTT — increasing programming costs and a customer base that is increasingly moving away from the traditional pay TV subscription model.

The lift was a big change from the prior year, when the four stocks in the sector rose about 5%, and signals an even bigger shift in sentiment. In a landscape where content is increasingly delivered over broadband connections, losing video customers doesn’t seem to matter much anymore.

Reliable Broadband Is Golden

“I think people have realized that broadband products have higher margins, they have lower churn, you don’t have to market them, you don’t have to deal with content providers,” FBN Securities media analyst Robert Routh said. The argument that younger viewers don’t watch TV also falls to cable’s advantage, because the streaming video they do watch requires a fast, reliable connection. “There are only so many entities that have that ability,” he said.

Video subscriber losses continued to rise and are expected to travel along that path for the foreseeable future. The sector lost about 3.8% of its video base in Q3, but broadband growth is steady. Leichtman Research Group estimated that cable grew its high-speed internet base by 14% in Q3 and represents more than two-thirds of total broadband connections across the country.

In addition, past fears that over-the-top providers like AT&T’s DirecTV Now, Sling TV and Sony’s PlayStation Vue would chip away at cable’s video subscriber base have been largely unfounded. Sony said in October it would shutter PlayStation Vue in January. DirecTV Now (now AT&T TV Now) was on pace to crack 2 million subscribers after a strong Q3 2018 but a series of price increases halted that growth and now the service has about 1.1 million customers. Some analysts believe that once AT&T launches IPTV offering AT&T TV in 2020, AT&T TV Now could disappear.

Sling TV had a resurgence in Q3, adding about 214,000 customers after five straight quarters of additions of fewer than 50,000 subscribers. At the same time, Sling parent Dish Network saw subscriber losses at its satellite-TV unit slow to 66,000 in the period (compared to a loss of 367,000 in Q3 2018) indicating to some that it may have reached equilibrium, as its rural subscriber base has fewer choices when it comes to pay TV and broadband. Dish, whose stock was up 34.3% for the year, also has been focusing on building out its wireless spectrum. Dish also agreed to buy wireless assets from Sprint and T-Mobile as a condition of those firms’ pending merger. That would make Dish the fourth largest facilities-based wireless communications provider in the country.

Fears that video distribution mantle would be passed to over-the-top competitors only heightened in 2019, with the debut of The Walt Disney Co.’s Disney+ and Apple’s Apple TV+ direct-to-consumer services and the pending launch of HBO Max and AT&T TV in 2020. While Disney+ lived up to the hype, signing on more than 10 million subscribers on day one, the fear that these services would replace pay TV has shifted to a belief that they, like Netflix, Hulu and Amazon Prime Video, will complement linear offerings. Even if they don’t, cable still has the most reliable broadband connection over which all these new services travel.

Programming stocks were up about 3.4% for the year, mainly driven by gains at Disney, up 33.2%, and Discovery, up 30.3%. Other stocks in the sector fell as declines in overall pay TV rolls negatively affect affiliate fees.

“Altogether, U.S. cable network distribution revenues continue to look shaky,” MoffettNathanson media analyst Michael Nathanson wrote in a research report.

On the distribution side, analysts like MoffettNathanson principal and senior analyst Craig Moffett have been saying for months that cable operators shouldn’t sweat video customer losses as long as their broadband service thrives. So far, it looks like that is exactly what is happening.

“Just a few years ago, video subscriber losses were the foundation of the cable bear case,” Moffett wrote in a recent note to clients. “Gradually, that fear faded. Video subscriber losses became something that investors were willing to ignore. Now, it’s something investors are hoping for.”

In initiating coverage of the sector earlier this year, Sanford Bernstein media analyst Peter Supino wrote that the “decline of cable video obscures rapid and durable cash-flow growth.”

It is no accident that the top performing stock in the cable distribution sector for the past three years has been Cable One, which began de-emphasizing video service in 2014. Cable One, which renamed itself Sparklight this year to reflect its focus on high-speed data service, has lost about 21% of its video customer base since 2015. During that same period, its stock price has risen 265%.

This year was one of Cable One’s best: Its share price has risen 86.1% this year to close at $1,526.06 on Dec. 10, nearly double the Dec. 31, 2018, closing price of $820.10.

Cable One has the highest cash-flow margins in the industry at 49.5% in the third quarter, almost 10 percentage points higher than the largest cable operator in the country, Comcast, at 39.8%. Cable One’s trading multiple, at 19.4 times cash flow, outpaces its closest peer, Charter Communications (11.29 times), by a wide margin.

“There was a time when a 10 times multiple for a cable stock would have been unthinkable,” Moffett noted.

The other stocks in the sector are also flirting with that benchmark. According to Yahoo Finance, Comcast is trading at an 8.8 times multiple and Altice USA at a 9.6 times multiple.

High trading multiples can mean positive things — investors becoming comfortable with video declines and confident that the sector’s broadband dominance is sustainable — and negative things: the stocks could be overvalued.

Routh said the rise in distribution multiples is more a sign that the market is valuing these stocks correctly.

“The question is what is the right valuation given the long-term prospects for those businesses,” Routh said. “I don’t think they’re overvalued yet and I do think they are certainly safe and better investments than other things I can think of. But I do question how much more is there, given where they are now.”

Charter, Altice, Comcast All Rose

Distribution stocks all had a strong year. Aside from Cable One, which led the pack, Charter stock was up 62% for the year and Altice USA, which despite a churn spike in the third quarter, finished the year up 53.8% to $25.41 per share. Comcast stock rose 25.6% from the year’s start to close at $42.77 on Dec. 10.

What also seems to set this year apart from the rest is that there were no major M&A deals in the distribution sector to drive the stocks. Cable stocks are traditionally deal driven. In 1998, the stocks were bolstered by widespread industry consolidation — 1997’s so-called Summer of Love — and AT&T’s purchase of Tele-Communications Inc. in June 1998. In 2016, when distribution stocks rose 40% for the year, Charter Communications had completed its pursuit of Time Warner Cable, an $80-plus billion deal that was supposed to usher in a new era of consolidation that hasn’t yet materialized.

Most recently, the merger activity has been on the content side: Disney closed its $71.3 billion purchase of certain 21st Century Fox assets in March. The other big deal, AT&T’s $108.7 billion purchase of Time Warner, closed in June 2018, although a Justice Department attempt to block the deal was thwarted in federal appeals court on Feb. 26.

At the UBS Global TMT conference in New York Dec. 10, Altice USA CEO Dexter Goei said he believes “large scale M&A is inevitable” across the infrastructure sector, but stopped short of saying whether his company would be a buyer or a seller.

“We’re always open to having discussions,” Goei said at the conference. “No one’s going anywhere, but we’re very, very focused on maximizing shareholder value.”

Consolidation could come to the distribution sector, as many analysts believe that Cable One and Altice USA could snap up several small operators across the country. Those deals wouldn’t move the needle much, though. The top three pay TV distributors — Comcast, DirecTV and Charter — account for more than half of the 93.4 million U.S. pay TV homes.

Still, Routh believes that distribution stocks have a lot of runway left in them, adding that low to mid-teens percentage growth for the sector is possible in 2020.

“It’s not just what I think,” Routh said, adding that he has heard similar optimism from investors. “I haven’t heard anyone think the opposite, at least anytime recently, which wasn’t the case a few years ago.”

Bernstein analyst Peter Supino launched coverage of seven cable, telco and satellite companies Wednesday with a positive outlook, adding that cable operators should enjoy mid-single digit revenue growth even as video customers decline.

Supino initiated coverage of Charter Communications (Outperform, $541 price target); Altice USA (Outperform, $38); T-Mobile (Outperforms, $103), Comcast (Market Perform, $50), Verizon (Market Perform, $63), AT&T (Market Perform, $36), and Dish Network (Under Perform, $29).

Supino noted in his detailed 84-page report that while Dish Network and the telcos have their own pressures to deal with, cable appears to be well positioned, based on strong broadband performance and prospects for commercial and mobile growth.

“With margins and [free cash flow] likely to improve and video less important to financial results, cable stocks enjoy multiple valuation tailwinds that offset the weight of the sector's high penetration levels,” Supino wrote.

He added that with capital expenditures expected to continue to decline, cash flow growth should be in the high-single digit percentages for cable operators.

The analyst introduced four investment themes to value the sector:

• Focus on pricing: Although the market is increasingly saturated, Supino believes there are sustainable opportunities in pricing and industry structure.
• Margins will be “stronger for longer” – Increased scale will continue to drive margins.
• Fiber is the key – As data demands grow and 5G continues to be hampered by siting and backhaul needs, “dense fiber networks are precious.”
• Video subscriber declines aren’t worth the worry: Supino believes that video losses “obscure otherwise rapid and durable cash flow growth.”

Cable stocks have been on a tear this year -- the sector was up about 50% for the first nine months of 2019 -- and are expected to continue on that pace. Supino appears to be equally optimistic -- his 12-month price targets on Charter, Altice, and Comcast represent a 10% to 30% premium of their closing prices on Oct. 15 

Almost a year after wall street basically left them for dead, cable distribution stocks have been on a torrid pace in 2019, with the sector rising more than 50% in the first nine months of the year. Those gains were fueled by broadband growth and a growing trend by analysts and investors not only to dismiss continued video losses, but to encourage them.

In the first nine months of 2019, cable distribution stocks are up 51.1%, led by Altice USA, up 77.4% since Dec. 31 to $29.30 per share, and Cable One, which crossed $1,000 per share in April and has been steadily rising ever since. Cable One closed at $1,254.76 on Sept. 25, 53% higher than its Dec. 31 close of $820.10.

No. 2 cable operator Charter Communications is up about 46% since the beginning of the year to $416.66 per share, and top MSO Comcast rose 35% to $45.83. That’s in sharp contrast to last year, when the sector rose just 0.6%, mainly because of gains at Cable One. Factoring out Cable One’s 16.6% increase in 2018, the sector was down about 21% in 2018.

Traditional pay TV’s claims that OTT providers couldn’t continue to offer programming at a loss for long has proved prescient, as major OTT distributors began to raise prices. The price hikes have led to defections, as shown with DirecTV Now (now AT&T TV Now), once one of the fastest-growing OTT service providers, losing about 168,000 customers in Q2.

Buoyed by Broadband

Comcast has subtracted 1.7 million subscribers since Q2 2016, while Charter has lost 1.1 million in the same time frame. But broadband growth, once thought to be nearing a wall, began to soar. Customers that were dropping or downsizing video services tended to remain broadband-only customers at a higher monthly rate. According to Leichtman Research Group president Bruce Leichtman, cable operators added 925,511 broadband customers in the second quarter, compared to 844,497 additions in Q2 2018. For the first half of this year, Leichtman estimated that cable added about 1.457 million broadband subscribers, compared to 1.43 million in the prior year.

“Cable operators are increasingly disinclined to defend video and investors are increasingly inclined to embrace rather than fret over video losses,” MoffettNathanson principal and senior analyst Craig Moffett said in a client note.

That is evident in the multiples that the market is assigning to cable companies. Cable One — which changed its name to Sparklight this summer to reflect its focus on broadband — has the highest multiple in the sector at 15.2 times cash flow, and the lowest reliance on video, with 34.7% of its total revenue from video, according to Moffett. Charter is next with a 10.7 times multiple and 41.3% of total revenue due to video. Comcast trades at 9.5 times cash flow, with video making up 43% of total revenue.

The strengthening of the stocks also could put some of these distribution players back into consolidation mode. At Altice USA — where video makes up about 45.3% of total revenue, according to Moffett — CEO Dexter Goei has said he thinks of adding scale daily.

Goei told Multichannel News in August that the rising stock price reflects Altice’s inherent value and could be used as an acquisition currency. He went further at this month’s Goldman Sachs Communacopia conference: “I think we’re open to creating a lot of shareholder value. So, if somebody comes and wants to have a discussion about buying us, we’re absolutely open to having that discussion.”

For programmers, the forecast is a little more cloudy. Overall, the sector was down 0.3% in the first nine months of the year, as optimism over new distribution outlets (which would mean a spike in affiliate fees) gave way to pessimism that offerings were either priced too aggressively or not aggressively enough.

Disney+ Drives Programmers

Gains at The Walt Disney Co., which plans to launch its Disney+ streaming service in November, drove most of the growth in the sector. Without Disney’s 21% gain for the period, the sector would have declined about 8.6%.

November also should see the debut of Apple TV+ from the maker of the iPhone. AT&T’s long-awaited HBO Max and AT&T TV offerings won’t be widely available until spring 2020.

Disney+ will be priced at $6.99 per month ($5.83 if customers pay for the full year) at launch while Apple TV+ is priced lowest at around $4.99 per month. AT&T is the wildcard having not released pricing for AT&T TV or HBO Max. Speculation is that the latter will be priced at $15 to $18 per month and will have HBO programming as well as content from WarnerMedia’s Turner networks and other properties.

The specter of more competition even hurt Netflix after CEO Reed Hastings mentioned at a U.K. TV conference that November is going to be “tough.” Netflix shares fell 5.5% on Sept. 20, erasing any gains for the year as the stock was down about 5% over the past nine months.

Almost a year after wall street basically left them for dead, cable distribution stocks have been on a torrid pace in 2019, with the sector rising more than 50% in the first nine months of the year. Those gains were fueled by broadband growth and a growing trend by analysts and investors not only to dismiss continued video losses, but to encourage them.

In the first nine months of 2019, cable distribution stocks are up 51.1%, led by Altice USA, up 77.4% since Dec. 31 to $29.30 per share, and Cable One, which crossed $1,000 per share in April and has been steadily rising ever since. Cable One closed at $1,254.76 on Sept. 25, 53% higher than its Dec. 31 close of $820.10.

No. 2 cable operator Charter Communications is up about 46% since the beginning of the year to $416.66 per share, and top MSO Comcast rose 35% to $45.83. That’s in sharp contrast to last year, when the sector rose just 0.6%, mainly because of gains at Cable One. Factoring out Cable One’s 16.6% increase in 2018, the sector was down about 21% in 2018.

Traditional pay TV’s claims that OTT providers couldn’t continue to offer programming at a loss for long has proved prescient, as major OTT distributors began to raise prices. The price hikes have led to defections, as shown with DirecTV Now (now AT&T TV Now), once one of the fastest-growing OTT service providers, losing about 168,000 customers in Q2.

Buoyed by Broadband

Comcast has subtracted 1.7 million subscribers since Q2 2016, while Charter has lost 1.1 million in the same time frame. But broadband growth, once thought to be nearing a wall, began to soar. Customers that were dropping or downsizing video services tended to remain broadband-only customers at a higher monthly rate. According to Leichtman Research Group president Bruce Leichtman, cable operators added 925,511 broadband customers in the second quarter, compared to 844,497 additions in Q2 2018. For the first half of this year, Leichtman estimated that cable added about 1.457 million broadband subscribers, compared to 1.43 million in the prior year.

“Cable operators are increasingly disinclined to defend video and investors are increasingly inclined to embrace rather than fret over video losses,” MoffettNathanson principal and senior analyst Craig Moffett said in a client note.

That is evident in the multiples that the market is assigning to cable companies. Cable One — which changed its name to Sparklight this summer to reflect its focus on broadband — has the highest multiple in the sector at 15.2 times cash flow, and the lowest reliance on video, with 34.7% of its total revenue from video, according to Moffett. Charter is next with a 10.7 times multiple and 41.3% of total revenue due to video. Comcast trades at 9.5 times cash flow, with video making up 43% of total revenue.

The strengthening of the stocks also could put some of these distribution players back into consolidation mode. At Altice USA — where video makes up about 45.3% of total revenue, according to Moffett — CEO Dexter Goei has said he thinks of adding scale daily.

Goei told Multichannel News in August that the rising stock price reflects Altice’s inherent value and could be used as an acquisition currency. He went further at this month’s Goldman Sachs Communacopia conference: “I think we’re open to creating a lot of shareholder value. So, if somebody comes and wants to have a discussion about buying us, we’re absolutely open to having that discussion.”

For programmers, the forecast is a little more cloudy. Overall, the sector was down 0.3% in the first nine months of the year, as optimism over new distribution outlets (which would mean a spike in affiliate fees) gave way to pessimism that offerings were either priced too aggressively or not aggressively enough.

Disney+ Drives Programmers

Gains at The Walt Disney Co., which plans to launch its Disney+ streaming service in November, drove most of the growth in the sector. Without Disney’s 21% gain for the period, the sector would have declined about 8.6%.

November also should see the debut of Apple TV+ from the maker of the iPhone. AT&T’s long-awaited HBO Max and AT&T TV offerings won’t be widely available until spring 2020.

Disney+ will be priced at $6.99 per month ($5.83 if customers pay for the full year) at launch while Apple TV+ is priced lowest at around $4.99 per month. AT&T is the wildcard having not released pricing for AT&T TV or HBO Max. Speculation is that the latter will be priced at $15 to $18 per month and will have HBO programming as well as content from WarnerMedia’s Turner networks and other properties.

The specter of more competition even hurt Netflix after CEO Reed Hastings mentioned at a U.K. TV conference that November is going to be “tough.” Netflix shares fell 5.5% on Sept. 20, erasing any gains for the year as the stock was down about 5% over the past nine months.

Traditional cable distribution stocks, once thought to be dead in the water as over-the-top players continued to erode their video customer base, came to life in the first half of 2019, as investors focused on broadband growth, driving the sector up by 40% in the period.

That’s a big turnaround from last year, when distribution stocks as a whole fell 5% during the period between Dec. 29, 2017 and June 19, 2018. The biggest factor in that reversal of fortune appears to be a combination of a change of attitude for investors, coupled with the continued strength of cable broadband service.

Altice USA, poised to launch its wireless service later this year, led the sector with a 45.6% rise in its stock price from $16.52 on Dec. 31 to $24.06 on June 19. Cable One, the Phoenix-based operator that changed its name to Sparklight in May to reflect its emphasis on broadband service, was a close second, rising 41.8% to $1,162.69 per share on June 19. The rest of the sector was up by double digits in the period, with Charter Communications up 39.6%, followed by Liberty Global (29.5%) and Comcast (26.7%).

Helping to fuel that growth was what appears to be a change of investor sentiment around the stocks. The first quarter was the worst ever in terms of cord-cutting — satellite TV companies took the biggest video customer hit, losing nearly 900,000 combined customers in the period, while cable companies lost a combined 366,000 video subscribers — but investors didn’t seem to worry. It’s all about connections.

Connectivity Is the Key

“Connectivity, that isn’t even close to dead,” FBN Securities analyst Robert Routh said in an interview. “Everybody needs it. They need WiFi, they need broadband, they need access to these OTT networks when they’re not on their cellphones. Because of that cable broadband growth has been what it’s been.”

Broadband growth across stocks in the cable distribution sector continued to be strong. Comcast added 375,000 high-speed internet customers in Q1, while Charter added 428,000, Altice USA added 36,900 and Cable One added 15,311. That momentum isn’t expected to shift anytime soon, according to Routh.

“Cable is still the best architecture for [broadband] and as a result demand for that product keeps going up,” Routh said. “Penetration is going up, churn is going down and there is no reason to think that will slow, ever.”

Investors are starting to realize that despite the trend toward OTT distribution, virtual MVPDs don’t work without a viable, reliable broadband connection. More often than not, that connection is through a cable company.

Large cable and telephone providers represent about 95% of the U.S. broadband market, according to Leichtman Research Group. In Q1, the top cable companies added 925,000 high-speed internet subscribers, a 109% increase over the prior year, and multiples above the 20,000 customers the major telcos gained in the period.

There are about 98.7 million broadband customers in the U.S., Leichtman estimated, with cable operators accounting for 65.3 million and telcos the remaining 33.4 million subscribers.

Routh said there might come a time when cable operators stop breaking out video, voice and data subscribers, instead disclosing connections only. Some operators are doing this to an extent — trying to push total customer relationships, rather than customers, for individual products. To some, the volatility of video only confuses investors.

“It causes the stocks to either stay within a narrow range or to whipsaw, where they go up one quarter when your subs show no [growth] or [some] growth in video, to a material down when you show a big loss in video,” Routh said of breaking out subscribers by product. “Because data is very consistent and telephony nobody cares about.”

Reporting overall connections could remove some of that confusion, he added.

“The reality is all that investors care about is how many homes you’re passing, how many are you connected to in some shape or form and what’s your average revenue per home,” Routh said. “They don’t care where the money is coming from.”

While distributor stocks were ablaze, the programming sector wasn’t quite as fiery, rising about 11.7% in the period as strong gains by large players were offset by sluggish performance at smaller content providers.

The Walt Disney Co., riding a huge wave of optimism after closing its $71.3 billion purchase of 21st Century Fox assets and mapping out details of its upcoming direct-to-consumer streaming offering, led the sector by rising 28.5% during the period to $140.92 per share on June 19.

Disney expects to launch its Disney+ streaming service in November at a $6.99 monthly price point, projecting at an Investor Day in April that between 60 million and 90 million customers globally would sign on to the service by 2024.

Disney’s decision to go full disclosure during that Investor Day — most analysts were at best expecting some vague subscriber data and no pricing information — helped lift the stock out of the doldrums.

“Bottom line: We got what we needed and we REALLY like what we heard,” Wolfe Research managing director Marci Ryvicker wrote in a note to clients about the April Investor Day.

Investors responded in kind. Disney stock hadn’t been able to consistently crack the $120-per-share threshold since the summer of 2015, when chairman and CEO Bob Iger revealed that its ESPN channel was experiencing some subscriber erosion, sending the sector into a four-year tailspin. Disney stock rose 11.5% on April 12 to $130.06 each, the day after the Investor Day, and has been up about 7% ever since.

Said Evercore ISI Group media analyst Vijay Jayant of the Disney Investor Day: “We came away encouraged by the sheer scale of the business model transformation that Disney has begun with the aim of becoming a leader in global internet TV. Clearly, the company has the brands, content and vision to make the strategy work — and we think the new ambitious long-term financial targets issued at the event, both on the revenue and cost sides of the equation, reflect the scope of the project now underway.”

Shares in Discovery Inc., which has been spending the better part of the year expanding its European sports lineup and landing deals with OTT providers, rose 23.3% in the first half. Viacom and CBS, fueled mainly by speculation that the two would finally recombine after more than a decade apart, saw their stocks rise by 18.6% and 13.8%, respectively.

Fox Corp., the entity left after 21st Century Fox sold most of its programming assets to Disney in March, has been pressured by what Routh said were investor concerns as to whether it would realize the cost synergies expected from the Disney deal, and whether management would implement a share-repurchase plan. Fox has said it expects between $300 million and $400 million in cost synergies and to generate about $2 billion in free cash flow annually after the Disney transaction.

“So what are you going to do with that cash?” Routh asked. “They haven’t done anything yet and people are questioning if they haven’t put a buyback in place and used it, why would I want to own it?”

The stock, as a result, is down about 6.8% since March 20, when Fox closed the Disney deal.

Routh and most other analysts expect Fox to rebound in the second half of the year and return to the high $30 or low $40 range by the end of the year.

Shaky Times for Smaller Nets

Smaller programmers have had a rougher go. AMC Networks was basically flat for the first half of the year (rising 1.9%). MSG Networks, which rode speculation that it could be a target of Sinclair Broadcast Group before Sinclair in late May reached a deal to buy 21 regional sports networks from Disney, was down by 9.1%.

World Wrestling Entertainment rose about 3% between Dec. 31 and June 19, as investors questioned the continued strength of its programming and its guidance for the first half of the year.

WWE’s sluggishness has more to do with investor expectations than performance, Routh said. It basically met its lowered guidance for the first quarter and should rebound in the fourth quarter.

Dish Network, down 28% in the first half of 2018, totally reversed that decline in the first half of this year, rising 55.8% between Dec. 31 and June 19. Fueling that growth was speculation that the satellite company would merge with DirecTV, or that it would purchase one of the expected castoffs of the T-Mobile-Sprint wireless merger, Boost Mobile. That deal was expected to be done as soon as last week, but no transaction had been announced at press time.

AT&T rose 13.6% during the period, after clearing the federal government’s second attempt to block its merger with Time Warner Inc. in February. Despite heavy losses at its satellite unit — DirecTV shed about 626,000 satellite-TV customers in Q1, while its OTT service, DirecTV Now, lost 83,000 in the quarter — the stock was buoyed by plans to launch a third OTT offering by the end of the year.

The FAANG stocks — Facebook, Amazon, Apple, Netflix and Google — all performed well in the period. The stocks were up a combined 21.5% in the first half of 2019, below the 34% growth they experienced in the prior year. Facebook, which has faced intense government scrutiny over its handling of customers’ personal data, saw its stock rise 43% in the first half, from $131.09 on Dec. 31 to $187.48 on June 19. Netflix was a close second, gaining 35.8% in the first half as it continued to dominate the SVOD landscape.

Amazon, up about 27% during the period, dipped its toes further in the content waters in the first half, partnering with the New York Yankees in that team’s purchase of regional sports network the YES Network. Apple, which was up 25% in the period, unveiled its Apple TV+ product in March to a somewhat tepid response. The service, which appeared to be light on compelling original content compared to its competition, is expected to be priced at $9.99 per month when it launches later in the year.

At least for the first six months of the year, though, cable distribution was the main story. And for Routh, that momentum should carry the stocks through the rest of the year and beyond.

“Everyone thinks distribution is going to do fine, they’re not worried about the value,” Routh said. “Content is a question. Unless you’re the size of Disney, how do you value it, how do you get comfortable? It’s that simple.”

The Nasdaq Composite Index fell 1.6% Thursday, edging close to bear market territory as the three three major exchanges flirt with bringing and end to the bull market run that began after the 2009 financial crisis.

The tech-heavy Nasdaq is also home to many cable stocks, which seemed to weather the decline, with a few exceptions. The Nasdaq finished the day at 6,528, down about 19.5% from its high of 8,109 on Aug. 29. A bear market is defined as a 20% decline from a peak.

Other exchanges didn’t fare much better. The Dow Jones Industrial Average closed down more than 464 points on Thursday, its third straight day of triple-digit declines. And the S&P 500 was down 1.6%. Both exchanges are at their lowest points since the fall of 2017.

Cable stocks were mixed, with some big declines at Altice USA (3.7%), Dish (5.4%), AT&T (3.9%) and Discovery Inc. (3.9%), while others like Comcast, Charter and Disney managed to keep their losses between 1% and 2% for the day.

The so-called FAANG stocks were mixed, with Amazon dipping 2.3% and Netflix off 2.2%, while Apple and Google were down 2.5% and 1.3%, respectively. Facebook was relatively stable, down just 2 cents per share (0.02%) to $133.22 each. 

Tech stocks got hammered in another challenging trading day, with the Dow Jones Industrial Average sinking more than 550 points as investors continued to worry about trade issues.

Friday’s dismal showing -- the Dow closed at 24,388.55, down 558.72 points -- brought the index down 4.5% for the week. Coupled with a 4.6% weekly loss for the S&P 500 Index and a 4.9% weekly decline for the NASDAQ, the indexes are on track for their worst December start since 2008, according to the Wall Street Journal.

Of the so-called FAANG stocks, Netflix was hit hardest, falling 6.3% ($17.74 each) to $265.14 per share. Next was Amazon -- down 4.1% to $1,629.13, followed by Apple (off 3.6% to $168.38 per share); Google (down 3% to $1,036.58 each) and Facebook (down 1.6% to $137.42 per share). So far this month, Netflix stock is down 8.7%, Apple is down 8.9%, Amazon is down 8.1%, Google is down 6.3% and Facebook fared the best, losing just 2.6% of its value over the period.

Related: Tech Stocks Battered, Cable Mixed in Market Meltdown 

Cable stocks were relatively stable, with a few exceptions. On the distribution side, Charter Communications fell the most, down 3.4% ($11.08 per share) to $315.70 each. The rest of the sector kept their losses in the 1% range -- Comcast declined 1.2% to $37.41 on Dec. 7, while Cable One dipped just under 1% to $870.30 and Altice USA dipped 0.7% to $18.24 per share.

Programmers fared about the same -- Disney led losers with a 2.1% decline to close at $11.08 each, but the rest of the sector was down less than 1% for the day.

On the satellite side, Dish Network slipped just 8 cents each (0.25%) to $31.92 per share, while AT&T shed 1.3% (39 cents) to close at $30.14 each.

The Dow Jones Industrial Average plunged nearly 800 points Tuesday as investors remained skittish over uncertainties around U.S. trade policy with China, fueled by a morning tweet by President Trump. The meltdown battered most tech stocks but turned out to be a mixed bag for cable shares.

The Dow closed at 25,027.07 on Tuesday, down 799 points as enthusiasm waned concerning the 90-day tariff truce in the U.S.-China trade wars struck over the weekend, after President Trump tweeted “I am a Tariff Man.”

[embed]https://twitter.com/realDonaldTrump/status/1069970500535902208[/embed]

Investors feared that animosity between the world’s two biggest economies could heighten, erasing any gains in the U.S. and rocking already shaky markets in Europe and Asia. 

The so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Google — had a rough day Tuesday, dropping between 2% and 5% each, while cable stocks were down but declines were not as severe.

Facebook fared the best of the FAANG stocks, closing at $137.93, down about 2.2% ($3.16 per share) while Netflix closed at $275.33 per share Tuesday, down $14.97 each or about 5.2%. Amazon fell 5.9% ($103.96 each) to close at $1,668.40 per share and Google dropped 5% ($55.61 each) to close at $1,050.82 per share. Apple dipped 4.4% ($8.13) to $176.69 per share.

Cable stocks fared a bit better, with declines in the 1% to 3% range.

Comcast fell hardest in the sector — down 3.7% ($1.46) to $37.69 per share, while Charter Communications dipped 1.5% ($4.86) to $321.84 each. Liberty Global dipped 2.1% and Altice USA was down 1.3% for the day, while Cable One was the sole gainer, rising 0.5% ($4.35 each) to $866.62 per share.

AT&T was down 3.1% (98 cents) to $30.73 and Verizon was essentially even, closing at $58.13 per share Monday, down 3 cents each. Dish Network had the biggest decline in the satellite sector, dropping 4.4% ($1.46 each) to $31.93 per share.

On the programming side, broadcaster CBS had the biggest decline, falling 4% ($2.16) to $51.35 per share. The rest of the sector was down between 1% and 2% each, with The Walt Disney Co. closing at $112.94 (down 2.4%), AMC Networks closing at $57.06 (down 2.1%); Viacom finishing the day at $30.88 (down 1.9%) and 21st Century Fox priced at $49.12 (down 1.1%).

Continued queasiness over the potential for higher inflation rates continued to pound the stock market Monday, with the Dow Jones Industrial Average shedding more than 1,100 points – it’s largest single day decline ever – as investors headed for the exits. Cable stocks, which fell hard in last week’s sell-off when the Dow lost about 1,100 points over five days of trading, continued to falter.

The Dow closed at 24,345.75, down 1,175.21 points or about 4.6%. Other indices had similar declines -- the S&P 500 fell 113.19 points (4.1%) to 2,648.94 while the NASDAQ 100 closed at 6,495.92, down 264.37 points (3.9%). 

Every stock in the sector posted losses on Monday, ranging from a 1.1% ($7.98 per share) decline for Cable One to a 4.8% ($1.83 per share) dip for Liberty Global.

The declines swept across business lines, with programmers, distributors and tech giants all posting losses. Google closed at $1,054.66 per share on Monday, down 5.2% ($57.24 each), while Amazon fell 2.8% to $1,390 each, Netflix was down 4.9% to $254.27, Apple fell 2.5% to $156.49 and Facebook was off 4.7% to $181.61 per share.

On the distribution side, Comcast was down 4.7% to $36.66, Dish fell 4.4% to $44,72 each, Charter was down 3.9% to $372.50, AT&T dipped 3.8% to $36.63 and Verizon was down 4.1% to $50.50 each.

Programmers also had a rough Monday, with Discovery Communications down 4.3% to $22.78 per share, AMC Networks down 4.2% to $48.92 per share; Viacom down 3.4% to $31.14; and The Walt Disney Co. down 3.7% to $104.70 per share.

A flurry of mega deal announcements late in the year didn’t help programming stocks that much in 2017, as the sector rose just 4.1% for the year, while distribution stocks, despite continued pressure from over-the-top competition, managed another year of double-digit percentage growth.

Despite an acceleration in pay TV subscriber losses in the third quarter – about 827,000, compared with 559,000 in the prior year – distribution stocks rose 12% for the year, fueled by strong growth at Charter Communications. Charter, the target of intense takeover speculation earlier in the year – none of those deals have come to fruition – rose 17% for the year, closing at $335.96 per share on Dec. 29.

That, coupled with steady growth at Comcast (16%), Liberty Global (17.2%) and Cable One (13%), offset declines at the two newest stocks in the sector. Altice USA, the domestic cable arm of European telecom giant Altice N.V., went public in May and fell about 35% by the end of the year, mainly dragged down by leverage concerns at the parent company. Overbuilder Wide Open West tapped the public markets in June, but dipped about 36% for the year, closing at $10.57 each on Dec. 29, as competitive concerns weighed on the stock.

Still, cable distributors gave back a big chunk of their gains earlier in the year when Comcast and Charter both reported subscriber losses in the third quarter. Comcast had warned investors that it would lose between 100,000 and 150,000 customers in Q3 due to Hurricane Harvey, as well as “competitive issues.” It ended up losing 125,000 video customers in the period, and broadband growth was slower than expected. Charter lost about 104,000 video customers in Q3 – more than twice its losses in the prior year.

Those losses affected the stocks – Comcast fell 7% in September after Comcast Cable EVP of XFinity Services Matt Strauss mentioned a shortfall was coming, and never quite recovered. If the year had ended on Sept. 6, Comcast would have finished up 19.2%. The same would have been true for Charter – its shares fell 8.3% on Oct. 26 when it announced Q3 results. The day before, Charter was on a pace to finish the year up 20%.

Distributor stocks rose nearly 40% in 2016, mainly on deal activity and speculation that more consolidation was to come. While 2017 wasn't the deal free-for-all that some may have expected, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said changing investor attitudes and tax reform are driving shares.

“Investors are transitioning to more of a higher data monetization, wireless market share, still solid overall financial growth and increasingly large capital return strategies,” Wlodarczak said. “At the end of the day I think we are in the seventh inning of the transition for cable.”

Neither sector matched the growth of the so-called FANG stocks – Facebook, Amazon, Netflix and Google – which rose a combined 46.8% for the year. Amazon, which plans to spend about $6 billion on programming in the coming year, rose the most, rising 56% for the year from $749.87 to $1,169.47 each. Netflix was a close second, rising 55.1% from $123.80 to $191.96 each, while Facebook gained 53.4% from $115.05 to $176.46 per share. Google gained the least but still beat cable’s best, rising 35.5% from $771.82 each to $1,046.20 per share by year’s end.

The Walt Disney Co.’s Dec. 14 announcement of its plan to purchase core assets from 21st Century Fox was the cap for what had been a strong deal year in the programming sector. In July, Discovery Communications announced its long-awaited purchase of Scripps Networks Interactive in a transaction valued at about $14.6 billion.

But those deals were just barely enough to push the sector into the black for the year. Overall, programming stocks were up 4.1%, perhaps weighed down by uncertainties surrounding the other mega-deal in the sector, AT&T’s $108.7 billion purchase of Time Warner Inc.

AT&T had expected to close the Time Warner deal by the end of the year, and for most of 2017 looked to be on track to meet that goal. But as the year wore on, rumblings that the Department of Justice would look unfavorably on the deal began to grow, culminating in a DOJ lawsuit in November to block the deal on anti-trust terms. AT&T has vowed to fight the suit, and is scheduled to have its day in court in March.

Whatever the outcome, the roller-coaster approval process has played havoc with the stocks. AT&T shares were down 8.6% for the year, closing on Dec. 29 at $38.88 each. Time Warner’s decline was softer, dropping 5.2% to close at $91.47 on Dec. 29.

Cable stocks were mixed in the wake of the Federal Communications Commission’s long anticipated decision to unravel net-neutrality rules, with Comcast and overbuilder Wide Open West up the strongest in early trading after the vote was announced, while other cable stocks yawned.

WOW shares rose the highest – they were up as much as 7% (61 cents) to $9.37 per share in early trading, while Comcast shares rose nearly 3% ($1.10 per share) to $39.68 each in the afternoon, shortly after the FCC announced its vote. But other cable operators and ISPs saw less dramatic stock price fluctuations.

Charter Communications was up about 0.3% ($1 per share) to $330 in afternoon trading, while Altice USA dipped slightly (0.1%, or 2 cents each) to $19.33 each and Cable One fell 1.3% ($9.19 each) to $684.31 per share.

Telcos AT&T and Verizon were relatively stable, down 0.4% and 0.6%, respectively.

Net neutrality’s biggest proponents – Google, Amazon and Facebook – didn’t see much damage from the decision in their stock prices. By the afternoon, all three were up by less than 1%.

Programming stocks were mixed as well. 21st Century Fox and The Walt Disney Co. were up the most – 5.4% and 3%, respectively, but that was for reasons other than net neutrality. For the rest of the sector, growth ranged from 2.7% for Discovery Communications and 0.4% for Time Warner Inc.

Pay TV stocks remained stable in the wake of Federal Communications Commission chief Ajit Pai’s moves to dismantle Title II classification of broadband providers, keeping a promise he made when he took office earlier this year.

Related: FCC Moving to Repeal Bright-Line Net Neutrality Rules

For the most part, stocks in the cable distribution sector were flat. Comcast rose 1.7% and Charter was up less than 1% for the day.

Pai has long opposed so-called net neutrality, a set of regulations under the 2015 Open Internet order and imposed by Pai's predecessor, Tom Wheeler. Wheeler, who was named FCC chair in the Obama Administration, called Pai’s recent moves “a tragedy,” according to reports.

But cable and telco broadband service providers have opposed the rules from the start, arguing that they are already doing much of what the regulations mandate on their own. And while Pai’s moves could allow broadband companies to throttle back some websites and charge for priority speeds or treatment, they would have to disclose when they are doing that even under the new rules. Perhaps that, and the fact that Pai’s stance on the regulation has never been a secret, led to the relatively tepid market reaction.

Related: House Republicans Say They'll Work for Permanent Net-Neutrality Rules

Comcast closed at $36.42 per share, up 59 cents each or 1.7%, while Charter Communications finished the day at $338.51, up 14 cents each or 0.04%. Altice USA shares fell 1.9% (38 cents each) to $20.10 each.

Telcos Verizon Communications, down 2 cents (0.04%) to $46.18 and AT&T, which Monday (Nov. 20) revealed the Department of Justice filed suit to block its merger with Time Warner Inc., fell 31 cents each (0.89%) to $34.33 per share.

On the content side, Viacom rose 4.2% ($1.12) to $27.27 each; Time Warner rose $1.85 each (2.1%) to $89.56 per share, The Walt Disney Co. rose 25 cents (0.24%) to $103 each and 21st Century Fox increased 22 cents (0.7%) to $30.88 per share. AMC Networks rose 71 cents (1.4%) to $50.55 per share and Discovery Communications, in the middle of the regulatory approval process for its $14,6 billion purchase of Scripps Networks, fell 12 cents each (0.7%) to $17.24 per share.

Tech stocks like Google, Amazon, Facebook and Netflix were relatively flat as well. Facebook was up the most – 1.75% or $3.12 each to $181.86 –followed by Google, up 1.6% ($16.13 per share) to $1,034.51; Amazon up 1.2% ($13.28 each) to $1,139.59; and Netflix, up 1.1% ($2.12 each) to $196.22 per share.

Comcast chairman and CEO Brian Roberts tried to ease investor fears at the Goldman Sachs Communacopia conference Tuesday, telling an industry audience that despite expected video losses in the soon-to-be closed third quarter, the company is performing well financially and operationally.

Comcast stock took a hit Sept. 7 after executive vice president XFinity Services Matt Strauss said at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Los Angeles that the nation’s largest cable operator would lose between 100,000 and 150,000 video customers in Q3 as a result of competitive issues and damage from Hurricane Harvey and Hurricane Irma. Strauss had said that despite the subscriber losses, Comcast was expected to meet its financial targets for the period, but that seemed to be lost on investors, who drove the stock down as much as 7% on Sept. 7. Comcast shares closed that day at $38.60 each, down 6.2%.

Comcast stock continued to fall in subsequent trading – it closed at $38.21 on Sept. 8 and $37.83 on Sept. 11. Roberts’ comments seemed to have some initial effect – the stock was up slightly in earlier trading – but was down later in the day, priced at $37.70 each at 2:30 p.m. on Sept. 12.

READ MORE: Charter's Rutledge says the battle is not against OTT video

Roberts started off his Communacopia presentation by addressing the issue, adding that Comcast was “in great shape,” and should end the third quarter with positive RGU growth as broadband subscribers continue to rise.

“Our investment in and focus on innovation is really paying off,” Roberts said. “We have the best products in the industry, our management team strong, and we have a good competitive position. We hit a competitive patch this quarter that was compounded by these two storms.”

The loss is particulary harsh as Comcast finished 2016 with positive growth in video (161,000 customers) for the first time in a decade. In the first half of the year, it continued to remain ahead of the curve, adding 41,000 video customers in the first quarter, while losing about 34,000 in Q2. It should also be noted that the third quarter is traditionally the weakest for cable operators, as college students and customers with summer residences disconnect service.

Roberts continued that the success of its X1 platform has become the company’s real asset, but video is the heart and soul of that platform,” he said. Comcast is expected to end the year with more than 1 million broadband additions, the eleventh straight year the company has added 1 million or more high margin high-speed data customers. Its business services unit is performing at a $6 billion revenue run rate and its newest product – XFinity Mobile – is proving popular with customers.

Comcast launched XFinity Mobile in May, as part of its Mobile Virtual Network Operator (MVNO) agreement with Verizon Communications. The product is available to existing XFinity customers and is characterized by its flexible plans – customers can opt for unlimited data, or can subscribe to a By the Gig plan that costs $12 per gigabyte per month. 

Roberts said that initially, most users are opting for the By the Gig plan.

“These prices we believe bring real value to the customer,” Roberts said.

Comcast took a hit Tuesday after influential media analyst Craig Moffett downgraded the cable sector to “neutral,” adding that most of the distribution stocks have either passed or are coming increasingly close to his 12-month price targets.

Comcast shares dipped 3.4% to close at $40.39 each, down $1.41 per share. Charter Communications stock closed at $333.61 per share, down 2% or $6.61 each.

READ MORE: Credit Suisse initatives coverage of WOW with 'outperform' mark

Moffett wondered in a 54-page research report Tuesday whether cable, which had been able to withstand pressure from over-the-top providers and skinny bundles by raising prices on broadband, would be able to maintain that practice.

Cable One, which has publicly said it favors broadband service over video, fell the least of the stocks in the sector, closing at $724.08 per share, down $1.58 each, or 0.22%.

READ MORE: Altice USA files IPO paperwork short on details

Other distribution stocks not in Moffett’s coverage universe also appeared to be affected. WideOpenWest, which went public last month and like Cable One has concentrated on broadband customers, fell 2.75% (49 cents each) to close at $17.34 on Tuesday. Alaskan cable operator general Communications Inc. was down 1.8% (67 cents each) to $35.89 per share.

Telco TV operators also felt some pain, with Verizon down 63 cents (1.35%) to close at $45.94 and AT&T dipping 25 cents (0.64%) to close at $38.66 per share.

Cable shares managed to weather Monday’s stock market storm in the wake of the president’s controversial immigration policies, with most shares showing slight gains as other sectors swooned.

The Dow Jones Industrial Average fell as much as 200 points Monday before closing down 123 points to 19,971, as the market feared increasing instability in the U.S. political system, stemming from worldwide reaction to President Donald Trump’s ban on immigrants from seven countries.

Trump’s executive order Friday, which barred refugees from Syria indefinitely and immigrants from seven Muslim-majority countries ( Iraq, Iran, Somalia, Libya, Sudan, Syria and Yemen) for 90 days and suspending the admission of all refugees for 120 days, touched off protests across the country over the weekend. Thousands of protesters marched in airports in cities like New York, Washington and Boston as 109 immigrants were detained under the order.

Several legislators expressed their outrage at the ban, including New York Gov. Andrew Cuomo; U.S. Sen. Charles Schumer (D-NY) and Rep. Keith Ellison (D-Minn.)

Trump blamed the airport delays on a computer glitch that grounded Delta Airlines flights (which happened on Sunday), protesters and “the tears of [New York’s U.S.] Senator [Charles] Schumer.”

While Trump’s administration called his actions another example of his decisiveness and action, the market and the world community feared it was a signal of increasing instability, sending the Dow plunging.

Cable shares were relatively unscathed. On the distribution side, Charter Communications gained 0.4% and Comcast and Cable One were down about 1%. Programmers fared even better, with The Walt Disney Co. (1.5%); Viacom (1.2%); AMC Networks (0.5%); Time Warner (0.25%); Scrips Networks (0.04%); 21st Century Fox (0.3%); and QVC Group (0.8%) all showing gains. Discovery Communications lost 0.3% and CBS was down 0.5%.

Airline stocks were hit hard -- American Airlines stock fell 4.4%; Delta Airlines was down 4.1% and United Continental Holdings dipped 3.6% on Monday. Tech stocks also took some hits – Google parent Alphabet Inc. fell 2.6% -- after several technology chiefs spoke out against the Muslim ban.

The decline – the biggest drop in the market since Oct. 11 – mars what had been a strong run-up since Trump won the election, when investors were encouraged by promises of more jobs, tax cuts and regulatory reform. Still, even with today’s decline, the index is up about 9% since Trump won the electorate.

But according to reports, the immigration moves are forcing investors to consider whether some of the President’s policies will create and deepen negative images of the U.S. on the world stage.  

On Monday, Trump signed another executive order, this one requiring all federal agencies to remove two regulations for every new one they enact.

With just 10 days left in the year and the Dow Jones Industrial Average inching toward a record 20,000 points, cable distribution stocks were a good place to be in 2016, with the sector up nearly 40%.

Dow 20,000 has been a possibility for days – the index was at 19,919.73, down 22 points at 10:45 a.m. on Dec. 22. The market barometer has gained more than 4,000 points in the past 12 months.

With consolidation on every cable investor's mind in the wake of Charter Communications’ $80 billion purchase of Time Warner Cable on May 18, it was no surprise that the two best performers in the sector were Charter – up 43.8%, or $88.74 per share to $291.24 on Dec. 21 – and Cable One, up 43.9%, or $190.21 per share to $623.87 each on Dec. 21. Cable One, which has switched its focus from video to broadband – it has lost about 20% of its video customer base in the past two years – is generally thought to be a prime takeover target in the coming months. But so far, no one has pulled the trigger on a deal.

Comcast, which agreed to purchase content company DreamWorks Animation earlier in the year for about $3.8 billion, rose 25.5% ($14.40 each) between Dec. 31, 2015 and Dec. 21, 2016, mainly on strong execution. The cable operator is expected to report its first full year of basic video customer growth in ten years in 2016.

Still, that combination of solid fundamental growth and merger speculation helped the sector over the hump in 2016  compared to 10% growth in 2015. And though consoldiation has removed two stocks from the distributor ranks in 2016 -- Time Warner Cable and Cablevision Systems, which was purchased by Altice USA in June -- one more stock could be added tto the mix in 2017. Altice USA, the domestic arm of Altice N.V. has said it is exploring a  possible IPO of a minority interest in the company in 2017.

Liberty Global, the international cable operator chaired by cable legend John Malone, was the lone declining stock in the sector, dipping 16.5%, or $6.14 per share, to $31.06 on Dec. 21.

Programmers had a tougher time, with declining subscribers, falling ratings and sluggish ad sales outweighing possible M&A activity. On that note, Time Warner Inc. was the top performer in the sector, rising 48.4% ($31.32 each) between Dec. 31 and Dec. 21 to $95.99 per share. Driving most of that growth was its October agreement to be purchased by AT&T for $108.7 billion, or about $107.50 per share.

That deal, which is expected to spark further attempts at vertical integration in the sector, is expected to close by the end of 2017.

AT&T’s stock rose about 23% for the year, from $34.41 on Dec. 31, 2015 to $42.36 on Dec. 21.

Scripps Networks Interactive, another possible M&A target, also posted strong gains for the year, rising 30% ($16.92 each) to $72.13 per share on Dec. 21.

The Walt Disney Co., which has been plagued by subscriber losses at its flagship sports network ESPN, managed to eke out a slight gain for the year, rising 0.5% (48 cents each) to $105.56 per share).

Viacom, which seemed to be headed toward a recombination with former corporate sister CBS until controlling shareholder Sumner Redstone’s National Amusements Inc. put the kibosh on the deal, fell 14.4% ($5.91 each) to $35.25 per share on Dec. 21. In contrast, CBS, which has ridden a wave of rising retrans fees, strong ratings and success at its over-the-top services CBS All Access and Showtime Anytime rose 37.1% ($17.50) for the year, closing at $64.63 each on Dec. 21.  

Other programmers reported more modest gains, with 21st Century Fox up 4.7%, Discovery Communications up 6.6% and MSG Networks up 4.6% for the year.

At Netflix, continued commitment to original programming and subscriber growth helped boost its stock up 10.6% ($12.12 each) for the year to $126.50 per share.

The biggest decliners in the programming sector were AMC Networks, down 30.3% ($22.61 each) to $52.07 per share for the year; and QVC Group, down 26% ($7.11 each) to $20.21 per share.   

Slumping oil prices and continued economic unrest in Asia and Europe pounded U.S. stocks Wednesday as the Dow Jones Industrial Average fell by about  539 points by mid-day, with some cable stocks posting heavy declines.  

It was another day of unrest in what has been a trying month for the stock market, dropping 539 points to 15,474 points by mid-day Wednesday. The Dow Jones Industrial Average is down nearly 2,000 points since the beginning of the year.

Cable stocks took it on the chin Wednesday, with Netflix and Starz leading the decliners, down 6.5% and 6.1%, respectively. The rest of the sector didn’t fare much better, with 21st Century Fox (down 5%), Viacom (down 4.5%), MSG Networks (down 4.1%),  Discovery (down 3.4%) and Disney (down 3.2%) all losing ground.

Distribution stocks fared a little better – Charter fell 3.1% to $162.25 per share; Comcast was down 2.75% to $52.46, Time Warner Cable dipped 1.2% to $175.47 and Cablevision dipped 1.5% to $30.86 each.  

Cable One, the Phoenix-based cable arm of Graham Holdings, is slated to begin when-issued trading on the New York Stock Exchange on June 11, giving investors some insight into what Wall Street really thinks about small-market MSOs.

Graham Holdings announced plans to spin off Cable One in November, and the stock will officially trade on NYSE (under the symbol “CABO) on July 1. But in the meantime, investors will get an early glimpse of how the market could value the company via when–issued trading under the symbol “CABO WI.”

According to some people in the cable financial community, some investment bankers estimate the market could value Cable One as high as 8 times to 8.5 times forward looking cash flow. That would be a pretty high public multiple -- other cable stocks trade in the 7 times range -- but would be in line with the 8 times to 10 times multiples paid for public and private cable companies recently.

When-issued shares can be bought or sold like ordinary securities, except that transactions do not settle until the stock is formally issued. The attraction: trading in when-issued shares usually require a small down payment of about 25% of the value of the shares and no margin or loan debt is needed for the balance until the settlement date, which can be weeks in the future.

Cable One has been at the forefront of the battle over high-programming costs, dropping Viacom’s suite of networks – including MTV, Comedy Central, Nickelodeon and VH1 – 14 months ago after the two could not reach a carriage deal. Cable One has claimed that Viacom demanded carriage fee increases of more than 100% despite ratings declines at many of its channels. Viacom has claimed it is merely seeking fair compensation for its content.

Dropping Viacom has taken a chunk out of Cable One’s programing expenses. According to its financial statements, programming costs have dropped “significantly” since it dropped Viacom more than a year ago, but so have its customer rolls. Graham’s 10-Q first quarter financial statement filed in May stated that Cable One has shed about 20% of its video customer base (to 421,331 from 524,563 in March 2014) in the past 12 months and has placed a lower emphasis on video product sales.

“Due to rapidly rising programming costs and shrinking margins, video sales now have less value and emphasis (video PSUs were down 20% over the first quarter of last year) and programming costs have been reduced significantly,” Cable One said in the 10-Q. The company added it is focusing more on “higher lifetime value customers who are less attracted by discounting, require less support and churn less.”

The spin will be a tax-free distribution to Graham shareholders of record as of June 15, who will receive one share of Cable One stock for every Class A and Class B Graham Holdings share they own.  Earlier in June, Graham announced that Cable One also will issue about $550 million in debt, which will be used to pay a one-time cash dividend to Graham Holdings.

Influential media analyst Craig Moffett, principal and senior analyst at MoffettNathanson, lowered his ratings on three top cable distribution stocks (Comcast, Time Warner Cable and Charter) to ‘neutral’ on Tuesday, citing the threat of price regulation tied to Title II reclassification of broadband and the increased possibility that regulators reject the Comcast-Time Warner Cable merger as hurdles that are too big to ignore.

Moffett has warned about the looming threat of pricing regulation with Title II for months, and though the stocks have stayed stable, perhaps in the thought that a Republican Congress will tamp down any pricing strictures, Moffett is not convinced.

“It would be naïve to suggest that the implication of Title II, particularly when viewed in the context of the FCC’s repeated findings that the broadband market is non-competitive, doesn’t introduce a real risk of price regulation,” Moffett wrote. “Not tomorrow, of course, so yes, near term numbers won’t change. But terminal growth rate assumptions need to be lowered. Multiples will have to come down.”

Moffett, who in the past gave the Comcast-TWC deal a 70-30 chance of winning approval, dropped those odds to 60-40 on Tuesday, citing increasingly negative sentiment in the press and federal moves to raise the minimum speed classification for broadband to 25 Megabits per second.

“Mostly, however, our downgrade is simply a matter of a sector that has priced in a awful lot of good news and very little bad,” Moffett wrote. “After a strong rally in the face of mounting headwinds, Comcast is now just 1% below our target prices, and Charter just 11%. We believe it is time to reduce exposure.”

Removing broadband pricing flexibility also could exacerbate other factors that are weighing on the indstry, he added.

"Worsening viewership and advertising trends are driving programmers to break ranks both with each other and with their legacy distributors," Moffett wrote. "In the past, changes to broadband pricing would have been the natural remedy. That avenue may be no longer open."

The stocks reacted tepidly to the downgrade, with Comcast closing at $58.80, down about 1.1% (67 cents each). Charter finished Feb. 17 down 0.8% ($1.43) to $176.45 and Time Warner Cable fell 1,4% ($2.06) to $147.68 each.

Cable stocks continued to regain the ground they lost in the wake of President Obama’s message to move closer toward Title II regulation of broadband, with shares of all the major cable operators rising in Wednesday trading.

The stocks took a beating on Monday after the President said in a video message that he would prefer the Federal Communications Commission move closer to Title II regulation to ensure an open Internet. That news sent cable stocks into a tailspin – shares of the top MSOs were down between 3% and 6% for the day – as investors feared more onerous regulation would stifle growth.

The stocks fared better on Tuesday, with Comcast and Charter posting tiny gains (1 cent and six cents per share, respectively) while other stocks in the space tempered their losses.

On Wednesday, the sector began its long climb back, with Comcast, Charter, Time Warner Cable, Cablevision Systems and Liberty Broadband all reporting increases.

Liberty Broadband, the tracking stock that includes Liberty Media’s 26% interest in Charter Communications, was the big gainer for the day, rising as much as 4% in earlier trading before closing at $47.15 each, up 3.2% ($1.46 per share). Liberty Broadband was followed closely by Time Warner Cable, up as much as 3% before settling to close at $136.38 (up 1.2% or $1.60 each), Charter Communications, up 2.4% before closing at $149.01 (a 1.6% increase) and Comcast, up 2% before closing at $53.60 per share, a gain of 1.2%. Rounding out the sector was Cablevision Systems, which rose as high as 1% (up 14 cents each) to $18.23 before closing at $18.15, up 0.3% or 6 cents each.