Citigroup Highlights Challenges for Charter in Q2, Including High Year-Against Comparisons and Potential SpaceX Partnership Hurdles

Charter Communications is scheduled to release its second-quarter financial results before the market opens on July 24th.

The quarter is expected to reflect the company's investments in network upgrades, expansion into rural areas, and preparatory work for a potential merger with Cox Communications.

Citigroup research analyst Michael Rollins has cautioned that EBITDA may fall short of expectations, primarily due to challenging comparisons with a strong prior-year period, a modest increase in advertising-related sales expenses, and the prospect of broadband average revenue per user remaining flat sequentially without price increases.

Rollins noted that weak subscriber growth, combined with competitive pressures on ARPU, is likely to weigh on the stock's near-term performance.

He also mentioned that Charter's broadband subscriber losses reached 64,000 year-over-year.

Rollins further stated that Charter continues to face significant competitive pressure.

While the company has some flexibility in utilizing terrestrial infrastructure, negotiations for a partnership with SpaceX in the consumer mobile service space could prove very difficult.

Rollins wrote that it would be surprising if Charter could sublicense its mobile virtual network operator agreement with Verizon to a third party.

The MVNO model allows Charter to lease cellular capacity in bulk from mobile network operators like Verizon, AT&T, and T-Mobile, which own the physical tower networks.

As MVNO agreements are typically limited to the reseller and do not permit further sublicensing, Rollins believes Charter might need to establish a distribution agreement to sell its Spectrum Mobile service if it wants to partner with SpaceX.

From a broader perspective, Rollins added that one should not rule out the possibility of cable companies eventually achieving a balance in broadband market share and revenue through more competitive market strategies, including potentially reselling their broadband platforms in exchange for more favorable mobile MVNO terms.

Citigroup research has reiterated its Buy rating on Charter Communications but lowered its price target by 17% to $190.