It isn't easy to be in the cable TV provider business these days. Cable operators are being squeezed by still-high "retransmission" (i.e., licensing) fees from content providers, while grappling with customer defections to video streaming services.
That's not stopping Colorado-based cable company WideOpenWest from launching an IPO, however. It is coming to market this week, with its shares listing on the New York Stock Exchange. Although its industry isn't a stock market favorite right now, can the scrappy company buck that trend?
WideOpenWest counts itself as the sixth-largest cable services provider in this country. It has just over 780,000 customers, who subscribe to one or more of its services. These include the usual cable offerings -- TV, internet, telephone, etc. The company's systems and operations are located mainly in the Midwest and Southeast.
It has grown its business by competing on price and flexibility against the larger incumbents, though it still operates in markets dominated by the likes of cable powerhouses like Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR). One way it competes is by offering bargain-priced internet-only packages for dedicated cord-cutters. This theoretically gives it an edge over the Comcasts and Charters of the market.
A recent round of cost-cutting has lifted WideOpenWest into profitable territory on the bottom line. The company's fiscal 2016 saw it net a profit of just over $26 million, following several years of losses. That was on the back of revenue that crept up by nearly 2% on a year-over-year basis, to $1.24 billion.
Lately, it has also managed to rein in some of its debt. From year-end 2014 until the end of this past March, its total indebtedness dropped from slightly over $3 billion to $2.76 billion.
That number should fall further after the company's listing. In the IPO prospectus, WideOpenWest said it would use nearly all the issue's proceeds for debt retirement.
WideOpenWest is, and will be, controlled by a pair of private equity operators -- Avista Capital Partners, and Crestview Partners. Following the IPO, the pair will hold around 69% of the company.
This Fool's take
For investors who believe the cable industry has a decent future, a relatively light and nimble pure-play operator like WideOpenWest could be a compelling investment. Due to its smaller profile and flexible options, the company has certain advantages over sprawling behemoths such as Comcast or Charter Communications.
The problem is, of course, that even with those pluses, WideOpenWest is smack in the middle of an industry on the decline. Although some of the cable biggies -- Comcast being one example -- have managed to grow revenue from pay TV subscriptions, they're doing it largely by increasing prices.
Cord-cutting is still a problem in this business, and as more streaming alternatives hit the market, this will only worsen. The old-line cablers are well aware of this, which is one reason they've either gotten deeper into the content game (e.g., Comcast's firm grip on Universal) or consolidated by gobbling up rivals (Charter grabbed Time Warner Cable last year).
WideOpenWest is a scrappy company that has done an admirable job of lifting itself out of the red. But the cable business, which has never been easy, will only become tougher in the future. Even the most powerful operators will find the going difficult, and at No. 6, WideOpenWest isn't among that group.
At the end of the day, it's a small, traditional player in a sinking industry. So, ultimately, it might be best for investors to pass on this new stock.
Just over 19 million shares will be sold in the IPO at a price of $20 to $22 apiece. WideOpenWest will be listed on the NYSE under ticker symbol "WOW" starting on Thursday.
The lead joint book-running managers of the issue are UBS Investment Bank and Credit Suisse.