Time Warner Cable's (UNKNOWN:TWC.DL) proposed merger with Charter Communications (NASDAQ:CHTR) moved closer to becoming reality last week when the state of New York voted to approve the transaction. The state set just a few conditions on the buyout, including broadband speed upgrades and pledges not to impose data caps, usage-based pricing, or early termination fees on contracts -- which the companies agreed to.
Growth in Charter's stock
So, with its operations likely to soon merge with Charter's, the biggest driver behind Time Warner's short-term stock price moves will be changes in the value of Charter's stock. The buyout terms pay Time Warner Cable's shareholders primarily with shares of the newly formed Charter entity. At closing, investors will have the option of taking either $100 in cash and 0.54 shares of the new company for each TWC share they own, or $115 in cash and 0.46 shares of the new company.
Yet neither of those trades makes Time Warner's business trends insignificant. Here two important operating factors that could push the stock higher in advance of the merger.
Surprisingly strong residential subscriber growth
In the nine months ended Sept. 30, 2015, TWC generated $14.2 billion -- 80% of total revenue -- from its residential segment that delivers cable programming, phone services, and broadband data packages to a combined 15 million subscribers. But while high-speed Internet services enjoy growing demand, expensive cable packages do not.
In fact, TWC posted a 4% drop in video members in 2014 and a 7% decrease in 2013. The resulting revenue slump was enough to completely offset double-digit gains in the Internet delivery business. But things are finally looking up on this score:
TWC recently announced that it ended 2015 with more cable subscribers than it counted at the start of the year. That's the first time it has managed growth in this key area in nine years. In a press release, CEO Rob Marcus called the inflection a "real milestone for our company and for the industry."
If TWC can return to video member growth, or at least keep subscriber rolls steady, the business could see sharp profit improvements in the years ahead.
A trend of more satisfied customers
Cable companies routinely top survey lists of America's most-hated enterprises. Among the biggest consumer complaints are bloated packages (who actually wants 300 channels?) and awful customer service ("We'll be there sometime between 10 a.m. and next Tuesday"). But if Time Warner Cable can post solid gains on these issues, then it might be able to stem the tide of customer losses for good.
The company has made quantifiable progress here, as well. CEO Marcus says management has a "single-minded" focus on improving the customer experience. Last quarter, it reduced customer call-ins by 11% and lowered required cable-guy visits by 16%.
Technicians managed to arrive within their one-hour appointment windows 98% of the time, and their "re-work" visits, where they had to make another stop to the same residence, declined by 11%.
Increased customer satisfaction is starting to show up in TWC's cancellation rate, which has fallen by 15% in many large markets, and by nearly 30% in a few others. Continued gains here might not make Time Warner America's favorite company any time soon, but they'd pave the way for the cable giant to post increasing subscriber numbers and a rising stock price.
Time Warner is scheduled to post its fourth-quarter earnings results on Jan. 28, and consensus estimates call for a 5% revenue uptick to $6 billion, while earnings fall 12% to $1.79 per share.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.