By Shalini Ramachandran
Cable provider Charter Communications Inc.'s sour first-quarter results delivered further evidence for Wall Street that stepped-up cord-cutting and slower broadband customer growth are putting U.S. telecommunications companies at a meaningful disadvantage to tech giants like Netflix Inc.
The third-largest American pay-TV provider by subscribers said it lost 122,000 video customers in the first quarter, a far worse outcome than the roughly 40,000 subscriber losses Wall Street analysts expected. In the year-earlier period, Charter lost 100,000 customers.
The results triggered an investor selloff, with Charter shares down as much as 16% in late morning trading, the largest single-day percentage decline since 2009. Shares recovered slightly and were down 13% in early afternoon trading.
Charter's results follow similarly negative reports on subscriber cord-cutting from its bigger rivals, Comcast Corp. and AT&T Inc., this week. Comcast said Wednesday it lost cable TV customers for the fourth-straight quarter due to heightened competition from cheaper online TV services, and AT&T reported video revenue declines as growth to its streaming service DirecTV Now didn't offset higher-value satellite TV customer defections.
The results have shaken investors' confidence that big telecom companies' broadband customer growth will offset declines from cord-cutting as time goes on. Charter reported Friday that its broadband customer growth decelerated, echoing a similar trend at Comcast and AT&T. Charter added 331,000 high-speed internet customers, compared with an addition of 428,000 a year ago.
Investors are concerned that the troubling subscriber trends and Comcast's recent bid for European pay-TV operator Sky PLC signal a more fundamental problem: That American cable and telecom giants don't have the assets and scale to hold their own against global tech giants.
Netflix, which is a prime draw for cord-cutters and has been expanding rapidly overseas, has been routinely beating Wall Street's expectations for subscriber growth. Its already pricey shares have soared 63% this year.
"Cable is currently out of favor, in large measure due to Comcast's extracurricular activities," wrote veteran Wall Street analyst Craig Moffett in a Friday research note.
The growing worries about cable and telecom firms have erased chunks from the market values of Comcast, Charter and AT&T. Since the beginning of February, Charter has lost more than $30 billion in market value, and AT&T has shed nearly $50 billion. Comcast's market value has declined nearly $50 billion since late January. Meanwhile, Netflix has gained more than $50 billion this year.
Charter's results Friday weighed down other industry stocks. Dish Network Corp. shares fell 3%, while Comcast and Liberty Global PLC each fell 4%.
On a call with analysts Friday morning, Charter Chief Executive Tom Rutledge said the company's optimistic vision for its future growth hasn't changed. Charter executives continue to point to the ongoing integration of Time Warner Cable and Bright House Networks, both of which Charter bought in 2016, as a major source for much of the weakness in subscriber results.
Mr. Rutledge said the integration has some "lumpy aspects to it as we combine the companies in various ways," but he added "that integration is actually going quite well and pretty much as planned."
While subscriber results disappointed investors, Charter increased earnings 8% to $168 million in the quarter, and overall revenue grew 5% to $10.7 billion, helped by broadband revenue growth, cable bill increases and ad revenue growth. Earnings per share grew to 70 cents from 57 cents a year ago. Profit and revenue fell short of Wall Street estimates of 98 cents a share on $10.8 billion in revenue, according to analysts polled by Thomson Reuters.