Shaw Communications scrapped plans to develop its own IPTV product and said it will instead roll out Comcast Corp.’s cloud-based X1 platform.
When Shaw Communications Inc. reports its fourth-quarter earnings this week, investors will be looking for signs that it can maintain revenue growth amid persistently falling subscriber numbers.
The Calgary-based cable operator has been relying on price increases to boost growth and reported lower-than-expected subscriber results this year as its stock has fallen close to 16 per cent in 2015.
"We see Shaw as a company with a flattening growth profile, as many of its product categories … have reached maturity and are now experiencing declines due to competition and substitution," Canaccord Genuity analyst Aravinda Galappatthige wrote in a September report, noting declines in home phone users and both satellite and cable TV customers. "This leaves a considerable burden on rate increases and the broadband [Internet] product to drive growth in these segments."
After several years of losing television customers to Telus Corp.'s IPTV offering, which delivers television signals over an Internet connection, Shaw scrapped plans to develop its own IPTV product and said it will instead roll out Comcast Corp.'s cloud-based X1 platform. The company is expected to provide more details on this plan when it reports its quarterly results on Thursday.
Shaw, which doesn't have a wireless business, won some investor love in recent years when Canada's three dominant cellular carriers – Rogers Communications Inc., BCE Inc. and Telus – came under pressure from government policies aimed at supporting more competition.
But the industry has largely adjusted to those changes, and Barclays analyst Phillip Huang notes, "Improving sentiment on the wireless sector means there's less investor demand for Shaw's 'haven status.'" Shares of Rogers are up almost 7 per cent this year and BCE stock is up more than 6 per cent, while Telus has gained 0.5 per cent.
Shaw's media business is also a concern for analysts, who point to falling advertising revenues and the threat faced by specialty channels – which rely heavily on subscription fees – in the transition to a "pick-and-pay" world by the end of 2016.
Rogers, which owns the Toronto Blue Jays and the team's official broadcaster, Sportsnet, can look forward to a boost in media revenue owing to the playoff run. "While this is not material to the overall consolidated results, it is in direct contrast compared to its peers Shaw and Bell Media," said Scotia Capital Inc. analyst Jeff Fan.
"We expect BCE and Shaw to report EBITDA [earnings before interest, taxes, depreciation and amortization] declines again [this quarter]," he wrote on Oct. 8. "The key drivers continue to be a lacklustre TV advertising market (both secular and seasonal weakness) and higher content cost. We believe these trends will remain in the foreseeable future."
He added that BCE's Bell Media has recently "made dramatic management changes" after new president Mary Ann Turcke took over. While Shaw has gone through some restructuring in its media division, Mr. Fan said he believes further cuts "will be necessary to prepare the TV segment for the secular and regulatory changes ahead."
A bright spot for Shaw could be its U.S. data centre business ViaWest, with higher revenue coming in part through the foreign exchange benefit of the low Canadian dollar as well as "continued healthy demand for co-location and cloud services," Mr. Fan wrote.
Consensus analyst estimates predict Shaw will report adjusted earnings of 39.5 cents a share on revenue of $1.35-billion, according to data compiled by Bloomberg.