Cox Communications (NYSE: COX ) , the nation's fourth-largest cable TV provider, reported solid 12% revenue growth for the fourth quarter. It also logged an $11.3 million loss. Talk about a mixed bag.
As expected, capital spending continued its decline from $1.9 billion in 2002 to $1.6 billion in 2003. That helped drive free cash flow to $498.4 million. Since Cox has $7 billion in debt to pay down, growing free cash flow is welcome news. At the same time, quarter-to-quarter growth rates for additional subscriber services weakened. High-speed Internet additions fell, as did digital cable additions. Only digital telephony saw a rise, and it was modest. Additions are good news, declining growth rates are not.
With just 36% of customers billed for two or more services, there is plenty of room for growth. Moreover, with the bulk of the infrastructure in place, the payoff for adding services is high. Reflecting both, revenue is expected to grow 12% in 2004 and capital spending to decline to $1.4 billion or less -- a combination that will boost cash flow.
Some good news: News Corp. (NYSE: NWS ) will recover programming cost increases by raising the prices it charges satellite TV provider DirectTV. That, at least for the moment, shifts the balance of power in the cable-satellite price war.
Some bad news: On its website, Cox tells of Disney's (NYSE: DIS ) ESPN having raised rates 500% over the last 10 years. Movie animator Pixar (Nasdaq: PIXR ) might walk away from Disney, but not Cox. It needs that content -- and will have to pay for it.
Consider for a moment how ironic it would be if Comcast (Nasdaq: CMCSA ) does end up with Disney. If it all goes down, Cox will be buying content not from a media conglomerate, but from a rival cable company, and complaining about its prices. How mixed up would that be?
Investors trying to sift through the crosscurrents might start with valuation: Cox trades at a rich 41 times free cash flow, and carries $7 billion in debt. And if Cox looks stronger -- at least from a cash flow perspective -- than Charter Communications (Nasdaq: CHTR ) , there are also serious heavyweights such as Time Warner (NYSE: TWX ) prowling the space.
It might sound like a cop-out, but rather than try to determine if subscription additions have hit a plateau, or are declining, or just what to make of so mixed a bag of results, it may simply be easier to find a better business mix somewhere else.
Motley Fool contributor W.D. Crotty owns stock in Disney, News Corp., and Pixar.
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