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TWC Grew Revenue, Lost Viewers in First Quarter

Time Warner Cable kicked off the 2013 cable-earnings season last Thursday (April 25) with mixed first-quarter results, growing revenue by 6.6% and cash flow by 2%, but losing 119,000 video subscribers as customers left the second-largest MSO in the country after promotional periods rolled off .

Video subscriber losses of 119,000 were above the 94,000 shed in 2011 and analysts’ consensus estimates of 91,000 losses. Highspeed data additions were strong at 131,000 for the period, while the MSO shed about 35,000 phone customers. Commercial services reported revenue of $537 million, up 25%, the 12th consecutive quarter with gains of 20% or greater.

Analysts were disappointed in the miss on video subscribers, which they attributed to the implementation of a $3-per-month modem fee and the expiration of aggressive promotional discounts in the period. However, they were encouraged by in-line OIBDA gains and lower-than-expected programming-cost increases (7.7% for the period, versus expectations of about 12%).

Investors also appeared on the fence, driving down TWC shares as much as 2% ($1.91 each) to $90.82 in early trading Thursday, before closing at $92.19, down 0.6% (54 cents).

On an analyst call, chief operating officer Rob Marcus said after a period of heavy triple-play promotions last year (it added 125,000 triple-play customers in Q1 2011), TWC shifted gears in the most recent quarter, focusing on packages more suited to customer needs. That resulted in a decline of about 35,000 triple-play customers in the period. Revenue per new connect was up 15% to 20% as the MSO was able to upsell new customers to higher data and video tiers.

“We’ve identified the risk and have taken steps to manage the churn as that big chunk of subs roll through the risky period,” Marcus said on the call.

In a research note, Nomura Securities media analyst Mike McCormack wrote that the subscriber misses highlight the risk of heavy discounting: It usually attracts price-conscious customers. While TWC has identified the problem, the analyst noted it could take a few quarters to work itself out.

“We believe Time Warner Cable’s problems are fixable, but don’t see improvement coming before 2H13, as the 2012 promotional subscribers continue to disconnect,” McCormack wrote.