As Cablevision (NYSE: CVC) reported its 1st Quarter financials to investors, Wall Street took a shortsighted view of earnings leaving company leadership to pick up the pieces. This is nothing new as companies work to invest in improvements to position their companies for future competition. This instance has Cablevision upgrading its networks to effectively compete with Verizon in the heavily populated areas of New York where they go head-to-head in a lucrative market. First, let me say James L. Dolan is not apologizing for taking a more long-term approach to financial health, and I emphatically agree.
The departure of long-time COO Tom Rutledge to Charter Communications (NASDAQ: CHTR) in December has CEO fueled speculation that differences with the Dolan family on how the company should be run was a primary cause, although denied by Rutledge. But as the new Charter CEO settled in, recruitment of Cablevision key players began with John Bickham being named COO and in April Jonathan Hargis was hired as top marketer. Other top executives have since left Cablevision including Jim Blackley, Kathleen Mayo, David Kline, and Barry Frey. Whether these individuals land at Charter is pure speculation, but does indicate a seismic riff at the top of Cablevision’s echelon, scarring Wall Street enough to downgrade the stock. See (Charter CEO recruits former Cablevision colleague Bickham for COO post)
On its 1st Quarter filing 2012 Cablevision CEO James Dolan explained to investor’s reasons for another lackluster financial performance sighting ongoing capital and operations expenditures in upgrading its network throughout its New York area footprint. Cablevision had a similar performance report for the 3rd Quarter 2011 and a stock downgrade in the 4th Quarter. With heavy competition from Verizon FIOS in its legacy market Cablevision must rely on excessive re-investment in operations to keep customers somewhat happy and not defecting in mass to its primary rival, Verizon. See (Cablevision Systems’ CEO Discusses Q1 2012 – Earnings Call Transcript)
This may provide some insight into executive departures including the fact that heavy expenditures hurt revenue/profits and stock price. As executive compensation is tied to both metrics, this may have been the trigger for key players to look for a more long term solution to career happiness. The company is not in a good position to retain good talent as FIOS competition, forced spending on major upgrades, family dominance in company control, and whispers of a pending sale send undeniable signals to executive outsiders that their fortunes are going nowhere. See (Dolan’s Cablevision, unplugged)
If Verizon’s FIOS is measured as the pinnacle of broadband, then Cablevisions Optimum service has stiff competition in a least half of its market. In a survey released in 2011 comparing broadband download speeds of major carriers as compared to the advertised speeds, Cablevision scored poorly at below 60% of its advertised, while Verizon’s FIOS scored well above 100%. It is all about speed and connection consistency across the board on services offered, including digital cable, broadband, and phone. The opportunities for Cablevision to embark on some kind of miracle in resurrecting its wire=line products against Verizon is not good. The best hope is to hold defections at bay with heavy spending on all metrics. See (Cablevision versus Verizon FIOS-Fiber Beats Cable for Quality Service in Hoboken)
There is no indication of a short-term fix for Cablevision stock as long as Wall Street continues to be uncertain about its future. Management may attempt to put a good spin on the above mentioned causes, but short of a merger or sale to a more dominant market provider, the company will be stuck in a quagmire. It must rebuild an executive team, continue to upgrade its network, and set a general direction for the company.