Altice USA Dials Back Fiber Strategy as Revenue Remains Under Pressure

Altice USA ATUS showed some improvement during the fourth quarter but still posted a generally weak end to a difficult 2022. New CEO Dennis Mathew used the earnings release to signal significant changes ahead, appointing four new senior executives (three of whom hail from Comcast, Mathew’s former employer) and sharply curtailing the firm’s fiber expansion plans. We don’t expect to significantly change our $19 fair value estimate, but we reiterate that Altice’s equity value is tiny relative to its debt load, making this a highly volatile investment.

Total revenue declined 4.7%, excluding the nonrecurring revenue recorded a year ago, as Altice’s customer base was 3% smaller at the end of 2022 than the year before and fewer customers took multiple services. However, net customer losses during the quarter weren’t as bad as we’d feared, coming in at 18,000 versus 13,000 lost a year ago, the best year-over-year comparison of 2022. Management said customer churn is coming down thanks to investments in customer service and the Optimum rebranding across the company. Increased operating costs to support these investments again weighed on profitability, as adjusted EBITDA declined nearly 13% year over year, excluding the benefit from the nonrecurring revenue recorded a year ago.

Altice passed nearly 1 million homes with fiber during 2022, reaching about 40% of the legacy Cablevision network in the New York metro area. The firm had planned to accelerate its upgrade pace in 2023, with ambitions to reach 1.7 million new locations with fiber, including 600,000 outside New York. It now plans to only build to 900,000 locations, a shift we think makes sense. Outside New York, Altice primarily serves smaller markets where upgrade costs per home are higher and the phone companies have invested less in their own fiber networks. Scaling back should also allow Altice to continue generating positive cash flow despite higher cash interest expense as a result of higher rates.