Corporate earnings in 2020 have been anything but business as usual. Investors are just now starting to see how COVID-19 has impacted business operations across America.
Unlike most companies, cable TV and broadband internet provider Charter Communications (CHTR -4.81%) found some silver lining in the pandemic. The company provided special COVID-19 incentives for customers to sign up for subscriptions, which ended up boosting its subscriber numbers and improving its financial results.
COVID-19 special offers
To combat the negative effects of the pandemic, Charter participated in "Keep Americans Connected," which is a program created by the U.S. Federal Communications Commission (FCC) to ensure Americans did not lose their broadband or telephone connectivity.
As a result of Charter's participation in the FCC program, the company offered free internet to households and educators not already subscribed to Spectrum (the company's internet brand). Roughly 450,000 free subscriptions were provided to those who qualified.
The pandemic was by no means an easy time for the company, and it saw plenty of customers cancel TV and internet subscriptions. However, 50% of participants in the Keep Americans Connected program elected to subscribe to Charter. The additional subscribers from this program helped Charter show revenue growth of 3.1% in the second quarter compared to the same period in 2019.
If the Keep Americans Connected program were a paid marketing initiative, it would have been viewed as a success due to the high conversion rate of participants to become paid subscribers.
Strong second-quarter earnings
During a period when many companies have been bracing for sales declines and losses, Charter was able to show improvement on both the top and bottom lines.
|Financial Metrics||Q2 2020||Q2 2019||YOY Change %|
|Revenue||$11,696 million||$11,347 million||3.1%|
|EBITDA||$4,489 million||$4,185 million||7.3%|
|Net income||$766 million||$314 million||143.9%|
|Earnings per share||$3.63||$1.39||161.2%|
As mentioned, revenue was boosted by the Keep Americans Connected program, which brought in more than enough new subscribers to offset those who opted to cancel their service. Charter has also been expanding its mobile phone service, called Spectrum Mobile. Spectrum Mobile now counts 1.7 million mobile lines, and while it is not a significant source of revenue, it is growing quickly.
Charter also saw its earnings before interest, taxes, depreciation, and amortization (EBITDA) rise in the quarter as the company kept spending flat while revenue increased. The company did incur costs to service the Keep Americans Connected subscribers, but the company found other places to cut spending.
Charter posted a strong quarter largely due to the customer account gains from the FCC program. So investors should be cautious before viewing these gains as sustainable for future quarters.
Despite the COVID-19 pandemic, Charter has proven that its cable and internet business model is stable even while facing headwinds from cord-cutting and an economic recession, and now the company is positioned to grow and expand its profit margins. This combination of factors has provided the conditions for the stock to perform well over the years.