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May 12, 2008

Cablevison: Cable Good But Strategy A Mess

Cablevision reported better than expected results driven by its core Cable operations and Madison Square Garden. Revenues grew 11% to $1.84 billion ahead of consensus of $1.78 billion. EBITDA grew 20% to $610 million, ahead of estimates for $560 million.

Financial and subscriber metrics at the Cable systems were better than expected. Revenues rose 8.6%, in line with expectations, while EBITDA rose 13.3% against consensus for 10% growth. The EBITDA beat provided about $15 million of the $50 million EBITDA surprise at the corporate level. Basic subs fell by 4,000 but analysts were expecting a fall of 8,0000 to 10,0000. Digital subs grew by 43,000, in line with estimates. Data and Telephone subs beat estimates rising 62,000 and 102,000 respectively....

....The rest of the beat in the quarter was at the MSG segment. "Lower provisions" for "tam personnel transactions" looks like it might have been a big positive swing factor. Also, the entertainment business grew nicely. On the call, management pointed out upside in entertainment at MSG including the acquisition of the Chicago Theatre. Recent speculation that Cablevision may invest more in this segment outside of New York seems plausible, especially if the company finally pulls the trigger on a sale of Rainbow. Rainbow had 9% EBITDA growth, wrapping up a very good year.

The big message from these results is that for now, Cablevision is dealing well with the competition from Verizon. If this is because Verizon is backing off a bit in New York as it grows FiOS elsewhere, the better than expected performance could prove fleeting. Or maybe Cablevision's superior network, excellent operating management, and well established incumbency is going to prove a stronger competitive advantage than expected.

I'm not sure and thus I have no opinion on the shares for now. They deserve to trade up on this quarter. Even more so given that Comcast's recent shareholder friendly actions have improved sentiment on cable stocks. Cable is also benefiting from the realization that cable vs. telco is not an either or investment decision.

Posted by Steve Birenberg at May 12, 2008 02:39 PM in Comcast/Cable TV