Charter Communications shares soared more than 13% Thursday after the MSO issued guidance showing that cable capital expenditures would drop through the floor in 2019, and fall well below what some top industry analysts were expecting.
Charter Communications Inc. , which has previously been reticent to provide such guidance, announced that total cable capex would fall to about $7 billion in 2019, down from $8.9 billion in 2018.
That greatly reduced capex number, which excludes Charter's spending on its relatively new Spectrum Mobile service, comes after Charter wrapped up its DOCSIS 3.1 network upgrades and completed a pricey all-digital transition in the systems acquired from Time Warner Cable and Bright House Networks. It also comes as Charter nears the completion of an integration process with those TWC and BHN properties that has gone on for about 2.5 years.
The falling cable capex at Charter also comes alongside expected decrease in spending on set-top boxes and other consumer premises equipment (CPE) as the MSO puts more focus on streaming apps that deliver its pay-TV service to retail devices, such as Apple TV boxes, Amazon Fire TV and Roku players, Samsung smart TVs and select gaming consoles.
Even with those declines, Charter still expects to see investment in its network capability to rise, company CFO Chris Winfrey said on the call.
Craig Moffett, analyst at MoffettNathanson LLC , expected Charter's 2019 capex guidance to show a decrease, but not anywhere near what was announced. (See Cable & Wireless: A Tale of Two Capex Scenarios in 2019.)
"We knew it would be lower than 2018, but just how much lower? Well, now we know the answer … and the answer is WOW," Moffett said in a research note.
He stressed that Charter's target of $7 billion in capex was a full $1 billion below consensus and nearly $2 billion below what the operator spent in 2018. Moffett noted that most company valuation models didn't see Charter's capital spending dipping to the $7 billion mark for another three years.
Falling capex has been a key part of Moffett's bullish thesis on cable, but not anything like this. "Valuation models across the street will need to be radically revised," wrote Moffett, who rates Charter at "Buy" with a target price of $470.
Charter shares were up $39.88 (13.76%) to $329.79 each in midday trading Thursday.
With respect to individual services, Charter lost 36,000 residential pay-TV subs in Q4, while adding 289,000 residential high-speed Internet customers.
Charter also shed 83,000 residential wireline voice subs as that offering starts to become an inexpensive bolt-on (the introductory price on it is now $9.99 per month), and as Charter instead begins to use Spectrum Mobile as the more prominent piece of triple-play packages that bundle in broadband and video.
Charter added 113,000 mobile lines in Q4, giving it 134,000 total. Charter launched Spectrum Mobile, via its MVNO deal with Verizon Wireless, last fall.
"Spectrum Mobile is ramping up," Tom Rutledge, Charter's chairman, and CEO declared on Thursday's earnings call.
For more about Charter's mobile strategy and what Rutledge thinks of 5G as a potential replacement/alternative to cable broadband, see our story at sister site, Light Reading. (See Charter CEO: 'Spectrum Mobile Is Ramping Up'.)
— Jeff Baumgartner, Senior Editor, Light Reading