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Internet, cable TV, and phone provider Cable One (NYSE:CABO) missed analysts' expectations in Q2 CY2024, with revenue down 7% year on year to $394.5 million. It made a GAAP profit of $8.16 per share, down from its profit of $9.36 per share in the same quarter last year.
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Cable One (CABO) Q2 CY2024 Highlights:
- Revenue: $394.5 million vs analyst estimates of $399.7 million (1.3% miss)
- EPS: $8.16 vs analyst expectations of $9.04 (9.7% miss)
- Gross Margin (GAAP): 73.2%, in line with the same quarter last year
- Free Cash Flow of $83.96 million, down 15.1% from the previous quarter
- Residential Data Subscribers: 963,200 at quarter end
- Market Capitalization: $2.32 billion
Founded in 1986, Cable One (NYSE:CABO) provides high-speed internet, cable television, and telephone services, primarily in smaller markets across the United States.
Cable and SatelliteThe massive physical footprints of fiber in the ground or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their traditional cable subscriptions in favor of streaming options. While that is a headwind, this affinity to streaming means more households need high-speed internet, and companies that successfully serve customers can enjoy high retention rates and pricing power since the options for internet connectivity in any geography is usually limited.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Cable One's sales grew at a weak 8.1% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Cable One's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.6% annually.
This quarter, Cable One missed Wall Street's estimates and reported a rather uninspiring 7% year-on-year revenue decline, generating $394.5 million of revenue. Looking ahead, Wall Street expects revenue to decline 3% over the next 12 months.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Cable One has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company's free cash flow margin averaged 19.6% over the last two years, quite impressive for a consumer discretionary business.
Cable One's free cash flow clocked in at $83.96 million in Q2, equivalent to a 21.3% margin. This quarter's cash profitability was in line with the comparable period last year and above its two-year average.
Over the next year, analysts predict Cable One's cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 19.7% for the last 12 months will increase to 20.9%, giving it more money to invest.
Key Takeaways from Cable One's Q2 Results We struggled to find many strong positives in these results. Its EPS missed and its revenue fell short of Wall Street's estimates. Overall, this was a mediocre quarter for Cable One. The stock remained flat at $404.56 immediately following the results.
