Arris Group (ARRS +0.00%) is set to report its fourth-quarter earnings results on Wednesday. The set-top box maker, which closed its acquisition of Motorola Home from Google in the second quarter, has grown earnings on the back of its new assets. With the news of a pending merger between Comcast (CMCSA +0.14%) and Time Warner Cable (NYSE: TWC), its shares have climbed higher ahead of its earnings report.
Arris is poised to capitalize on the growing TV Everywhere trend, as cable companies and telecom companies like Verizon (VZ +1.01%) upgrade their home gateways and set-top boxes to support the service. Considering Comcast now owns a 7.7% stake in the company, it also stands to benefit from the cable giant as it returns to subscriber growth and potentially gains Time Warner's subscribers. Of course, that deal won't close for some time still, if ever. Let's see what we can expect from Arris on Wednesday.
Stats on Arris
|
Analyst EPS Estimate |
$0.45 |
|
Year-Ago EPS |
$0.28 |
|
Revenue Estimate |
$1.16 billion |
|
Change From Year-Ago Revenue |
237.7% |
|
Earnings Beats in Past Four Quarters |
3 |
Source: Yahoo! Finance.
The Street wants its TV
In the last 90 days, the Street's consensus earnings estimate has moved up a penny. The company's share price, on the other hand, has moved up quite a bit more since Arris' last earnings report in October. Shares have climbed 69% while the S&P is up just 4.3%.
The stock jumped after Arris reported better-than-expected earnings for the third quarter. The company reported $0.39 in non-GAAP EPS on revenue of $1.067 billion. The former beat the consensus estimate by 14.7%, while the latter matched.
For the fourth quarter, Arris guided earnings of $0.42 to $0.46 per share on revenue of $1.15 billion to $1.18 billion. The guidance was slightly higher than what analysts originally expected.
Fighting cord cutters
As a cable box provider, Arris faces the risk that the cable subscriber market is saturated, and thus very competitive. A couple of Arris' biggest customers, Comcast and Verizon, saw video subscriber growth in the fourth quarter. Comcast added 43,000 new video subscribers, while Verizon added 92,000. Unfortunately, Time Warner Cable, Arris' second largest customer, lost 215,000 video subscribers.
Arris, however, is at the forefront of a growing trend in cable delivery -- IPTV. Internet protocol delivery combines video and related data to deliver programming over the Internet. This combines Arris' old strength -- data delivery -- with its newly acquired strength -- video delivery. As more companies shift toward IPTV, Arris is poised to gain share and increase revenue.
While people are cutting cords with their cable companies, Comcast, Time Warner, and Verizon all have incentives to provide a better service. Verizon's acquisition of Intel's OnCue may move the company closer to offering true IPTV with a cloud-based DVR. Comcast, too, offers a cloud-based DVR option, multi-screen playback, and a slew of apps supported by Arris' XG1.
The XG1 came out in the third quarter, and the fourth quarter saw Comcast increase video subscribers for the first time in 6.5 years. Whether IPTV features were the cause is unclear, but it indicates Comcast is reducing its churn, which is good for Arris. Comcast will likely stay loyal to Arris despite strong competition because of its stake in the company. If the purchase of Time Warner Cable goes through, Arris could benefit from more set-top box upgrades.
What to watch for
When Arris reports on Wednesday, watch to see if it can grow revenue sequentially, as it has guided. The Motorola Home acquisition has skewed its year-over-year results, so it has a couple more quarters of easy comps. The growth in Comcast subscribers was a surprise and may translate into a surprise for Arris, too, but Time Warner's losses more than offset subscriber gains elsewhere. Increased revenue per unit from high-end cable boxes will need to make up for that.
