Cable One's focus on high-margin broadband continues to pay off as the operator said Monday it added 21,000 net high-speed Internet customers in the third quarter of 2020, blowing away year-ago adds of 6,400 and handily beating analyst estimates.
Cable One, which released preliminary Q3 results amid a $500 million debt offer that foreshadows further strategic investments (more on this later), expects to post consolidated revenues of $333 million to $339 million, in line with a Wall Street forecast of $336 million. Cable One will post full Q3 results and hold its quarterly call on Thursday, November 5.
Cable One didn't disclose video results in its prelim announcement, but the broadband adds show an as-reported growth rate of 26.7%, or 14.2% without the inclusion of customers coming way of Cable One's acquisitions of Fidelity Communications and ValuNet Fiber, according to MoffettNathanson analyst Craig Moffett.
"Cable One is well-situated to benefit from the trends driving broadband adoption industry-wide," Moffett explained in a brief note issued today. "Rural broadband is all the rage at the moment, with minimal competition and, generally speaking, lower penetration."
Assuming a 1% year-on-year increase in homes passed, Cable One's residential penetration of passings climbed from 32.3%, to 33.1% (not including ValueNet) in a single quarter. Said Moffett: "That kind of rapid penetration gain is consistent with a very robust market."
Broadband market still on fire
Rural focus aside, Cable One's broadband results also reflect continued strength in the category across service providers that have reported Q3 results thus far, no doubt benefitting from a surge in installations during the pandemic.
Last week, both AT&T and Verizon posted better-than-expected broadband growth for Q3. Comcast, which reports Q3 results Thursday, pre-announced at a recent investor conference that it expected to add more than 500,000 net broadband subs in the period, thumping a record 492,000 net adds set in Q1 2008. Comcast chairman and CEO Brian Roberts said last month that for the entire year the MSO should "greatly exceed" the 1.4 million broadband subs it added for all of 2019.
Broadband "is shooting the lights out. For everyone," Moffett said, noting that margins for operators continue to climb as broadband sub bases grow and pay-TV sub bases (presumably) shrink.
"As broadband displaces video, cable operators become telecom providers. Margins above 50% aren’t unthinkable for telecom companies without programming costs, and with a business that requires fewer customer service and repair and maintenance calls than a video-centric cable operator would," Moffett added. "Broadband growth is the sizzle. But margin expansion is the steak."
Cable One poised for further investments
Signaling that M&A will remain a core piece of its growth strategy, Cable One also announced today a private offering of $500 million.
Cable One said the offering is earmarked for general corporate purposes that may include additional acquisitions and strategic investments, including its recent investment in Mega Broadband.
Last month, Cable One struck a deal to snap up a 45% stake in Mega Broadband, formed by the acquisitions of Vyve Broadband, Northland Communications and the broadband assets of Eagle Communications, with the potential to acquire it all in 2023.
That follows a bunch of other M&A activity from Cable One that includes stakes in two fixed wireless ISPs (NextLink and Wisper), a minority stake in Hargray Communications, the acquisition of ValueNet Fiber, and deals for Fidelity Communications (in 2019) and Clearwave Communications (in 2018).
As a recent winner of CBRS spectrum, Cable One also appears to be sizing up other ways to extend its service reach to adjacent areas.
- Cable One $500M offer could signal more strategic investments
- Cable One swings deal for big piece of Mega Broadband
- Cable One, Hargray seal deal
- Cable One snaps up ValueNet Fiber
- The full list: Here are the actual bidders in the C-band auction
- Cable One invests in two fixed wireless ISPs
— Jeff Baumgartner, Senior Editor, Light Reading