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Cable IPO does not exactly WOW! investors


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Cable IPO does not exactly WOW! investors

WideOpenWest Inc. dove into the public markets during the week ended May 26, but the splash it made was smaller than expected.

WOW!, the Colorado-based cable operator, said May 24 that it had priced its initial public offering of 18,235,295 shares of common stock, not including additional shares reserved for underwriters, at $17 per share. That was both a smaller number of shares and a lower price than had been expected.

As recently as May 19, the company said it planned to offer 19,047,619 shares of common stock, not including the allotment for underwriters, at a price between $20 and $22.

WOW! CEO Steven Cochran told The Denver Post on May 25 that one possible reason for the market's tepid response to the company's offering is that WOW! has "a different story than what investors are used to."

WOW! is one of the top 10 largest cable operators in the U.S. in terms of customers, with 780,100 at the end of the first quarter. WOW! provides broadband, video, telephone and business services across 19 markets in the states of Alabama, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Ohio, South Carolina and Tennessee.

Like a number of other smaller cable operators, WOW! has been emphasizing its broadband offering over its video services recently. The company saw its video subscription revenues drop to $128.7 million in the first quarter, down from $134.8 million in the year-ago period. Kagan analyst Tony Lenoir recently noted WideOpenWest's video penetration rate of serviceable homes and businesses of stands at 15.6%, as compared to an industry average of 36.4%.

The reason some smaller operators are making the choice to focus on broadband over video is because the former offers higher margins. Video margins have suffered due to rising programming costs and pressure from lower-priced over-the-top alternatives.

After pricing at $17, shares in WOW! began trading on May 25 and ended the day at $16.50. However, investors showed a little more enthusiasm on the following day, with shares gaining 6.4% on on May 26 to close the week in the black at $17.55.

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Elsewhere in cable, two titans of the industry — Comcast Corp. and Charter Communications Inc. — both saw gains for the period. Comcast and Charter closed the week at $40.91 and $337.44, respectively, up from a May 19 close of $38.85 and $315.78.

Turning to wireless, Sprint Corp. and T-Mobile US Inc. shares both climbed during the week ended May 26 as market speculation about a potential merger continued. Top executives at the corporate parents of both companies have expressed interest in trying to strike a deal and some media reports have indicated the two wireless operators are in talks.

At a May 22 investor conference, Sprint CEO Marcelo Claure added new fuel to the fire, saying powerful synergies could be created by combining the two companies.

"Having a company … in which you combine the two mavericks and you create a turbocharged maverick that continues to fight for consumers, but now with a different scale — I mean, the synergies are pretty interesting," he said.

However, Claure also said the synergies in a deal with one or more cable companies could be equally appealing.

"When you look at the potential of your business combining with one or two or with three cable companies … the synergies are enormous," he said, pointing not only to traditional operating synergies but also network synergies in terms of a 5G buildout. Claure also noted "tax synergies" from Sprint's accumulated set of net operating losses, as well as "churn synergies."

"It's been proven in Europe or different places where you have the traditional merger between a cable company and a wireless company, how both businesses get better … from a churn perspective," he said.

Shares in Sprint closed May 26 at $8.40, while shares in T-Mobile traded at $67.80. A week earlier, shares in Sprint and T-Mobile had closed on May 19 at $8.07 and $66.37, respectively.

In the new media space, TripAdvisor Inc. had a tough week.

At a May 22 investor conference, TripAdvisor CFO and Treasurer Ernst Teunissen warned that the company's second quarter may not deliver the same double-digit growth that the company recorded in the first three months of the year.

"We're still reiterating our outlook that we're going to get double-digit growth in our click-based and transaction revenue line for TripAdvisor," he said of the full year. But in the second quarter, he said the company could see some deceleration.

In the first quarter, the company said its TripAdvisor-branded click-based and transaction revenue grow 12% year over year. By comparison, Teunissen said the second quarter is likely to be in the mid to high single-digit range.

Shares in the online travel agency dropped to $39.07, down from a May 19 close of $44.08.

CFRA Research analyst Tuna Amobi noted on May 26 that shares in TripAdvisor were down 14% in 2017 year-to-date, below the analyst's 12-month target price of $45. Given the lower stock price, Amobi raised his rating on TripAdvisor shares to "hold" from "sell."