Cable One's earnings miss: That's ARPU, folks!

On Thursday evening, Cable One reported a year-over-year revenue drop and earnings below expectations, and it name-checked the government's Affordable Connectivity Program (ACP).

"We believe our strategic initiatives intended to drive penetration deeper across all market segments are setting the stage for sustainable long-term growth," said Julie Laulis, Cable One's president and CEO, in the company's earning press release. 

"Despite challenges such as the discontinuation of the Affordable Connectivity Program ("ACP") and typical seasonal headwinds, the underlying fundamentals of both residential and business data additions and retention levels maintained positive momentum during the second quarter, with both connects and disconnects improving year-over-year for the second consecutive quarter," Laulis is quoted as saying. 

The earnings release listed more reasons for Cable One's setback quarter. "The year-over-year decrease was due primarily to lower revenues, partially offset by an $8.5 million reduction in programming costs resulting from video customer losses, a $5.5 million severance charge resulting from organizational changes implemented during the quarter and a $7.7 million gain related to C-band spectrum relocation funding received from the federal government," the company said in its press release.

Related:Cable One to cut 4% of workforce

Cable One's net income fell from $55.2 million in the year-ago quarter to $47.6 million. But that's still a profit.

The company reported earnings per share of $8.16 on revenues of $394.46 million for the second quarter of 2024. Both numbers were below Wall Street's expectations by $0.44 and $2.02 million, respectively.

The company's shares were down -12.24 (-3.02%) to $392.33 at 11:11 AM EDT on Friday. Cable One's shares have lost 40% of their value in the last 12 months; the S&P 500 Index is up 16% over the same period.

Change afoot

Last quarter, Laulis noted that change was in the air. The company's past assumption that rural markets were less likely to have fiber competition from telcos wasn't proving to be true. It needed to fight for a broader base of customers. The competitive winds have gone from a straight-line gale to swirling chaos.

"We are now navigating a marketplace characterized by low move activity, the emergence of new fixed wireless competitors targeting value-conscious customers, a segment we had not previously targeted, and a rise in additional fiber competitors in select markets," CEO Laulis explained last quarter.

Wall Street analyst Craig Moffett of MoffettNathanson Research said that without a quick way to add new broadband subscribers or a wireless offering, Cable One's only way to show Wall Street growth was with its average revenue per user (ARPU). And, sometimes, we aren't in the mood to hear a one-note symphony. "Cable One pushed broadband ARPU to by far the highest level in the industry. Now they are paying the piper," he wrote in a note to clients last night.

Related:Low valuation makes Cable One a 'plausible acquisition target' – analyst

Moffett noted that Cable One's ARPU was 15% higher than AT&T Fiber and 16% higher than Charter's. His analysis pointed out that competitors are raising rates, so Cable One will be more competitive if it holds steady. However, other competitive pressures – rural fiber builds funded by government programs and fixed wireless competition – might make that strategy seem unwise.

While it plots its next move, Cable One is cutting costs. A couple of months ago, it cut hundreds of workers, and it is still investing in the efficiency gained by digital transformation, which can be dramatic for telcos and cablecos.

In Cable One's case, the company has said it is unifying its billing systems in the next 12 months, which will retire 30 disparate software platforms and save it several million dollars a year.