Shaw Communications Inc.'s strategy of beefing up its Internet service in a bid to stem the flow of subscribers to Telus Corp. is helping the cable giant shrug off its recent slump.
The Calgary-based company posted third-quarter results on Wednesday that beat Bay Street expectations, as profit jumped 28 per cent.
Shaw had posted disappointing results over the last couple of quarters for its core cable TV and Internet businesses due to competition from Telus.
After being battered by competition in Canada’s shifting telecom landscape, Brad Shaw, who took over last fall as the new chief executive officer, has turned the company’s focus toward boosting its Internet service.
“We’ve turned this ship around,” Mr. Shaw said on a conference call with analysts. “The growth of the days before are not going to be the same … but competition does that.”
The company reported net profit in the third quarter of $202-million, or 45 cents per share, up from $158-million, or 37 cents, a year earlier, beating consensus expectations of around 42 cents per share. Revenue was also up 36 per cent, soaring past the $1-billion mark to $1.2-billion from $943-million during the same quarter last year.
Shaw’s new media assets – acquired through the purchase of CanWest last year – came in well ahead of expectations, aided by a recovering advertising market and big ad spends during the federal election. Executives on the call added that the media division, Shaw Media, was exceeding their own previous estimates.
Some of the company’s cost savings in the quarter came from what one executive described as the “emotional” layoffs of 550 employees, including 150 managers.
The company hinted that there was more restructuring to come over the coming months, but in an interview Shaw president Peter Bissonnette said this was related to a three-month process to examine how the company ordered equipment and would not entail any more job losses.
The company offered little clarity on its already-delayed plans to launch a wireless network, which would give the company a new source of cash as growth slows for its core telecom services.
Telus continues to eat into Shaw’s share of the TV market with its new Internet protocol-based TV product, Optik. In the quarter, Shaw again saw losses in its basic cable TV subscribers, and missed estimates of how many total new subscribers the company would bring in on Internet, TV and home phone services; Shaw added slightly less than 50,000 new subscribers across these services, compared with consensus expectations of around 78,000.
Mr. Bissonnette, however, said Shaw was attempting to shift perceptions in Western Canada to have people think of Shaw as a powerful Internet service provider, as opposed to being just a cable company.
“We want to be the broadband leader,” Mr. Bissonnette said. “If there's a service where we can differentiate ourselves … that's what we're going to focus on.”
But not all buy the thesis that Shaw has growth in its future. Macquarie Securities analyst Greg MacDonald said the company has always been focused on profit, and that the positive quarter doesn’t surprise him, but that price increases in a maturing business worry him.
“You’ve put through price increases at a time when most of these products are maturing, when you’ve got a competitor clearly is taking some share,” Mr. MacDonald said. “How can 4, 5 or 6 per cent price increases hold? My view is, if you look to the subscriber numbers, you’re starting to see the evidence that the pricing power is slipping. And that’s the concern I have going into 2012.”