‘Almost too good’: Shaw reports breakthrough wireless gains
Shaw Communications Inc. had a breakthrough quarter in its ambitious plan to take on the Big Three wireless players, posting results one analyst described as “almost too good” after it started selling iPhones for the first time over the competitive holiday shopping season.
The Calgary-based company said Thursday its wireless division Freedom Mobile added 93,500 wireless subscribers in the three months ended Feb. 28, doubling analysts’ estimates of 45,000 new customers and nearly tripling the volume it added in the same period last year.
Shaw shares spiked more than nine per cent to close at $26.42 in Toronto as analysts praised its performance in a mobile market dominated by BCE Inc., Rogers Communications Inc. and Telus Corp.
While wireless revenue soared 106 per cent to $290 million, lifting overall revenue 12.4 per cent to $1.36 billion, the gains could not mask troubles at Shaw’s traditional cable and satellite television business, which lost subscribers despite the introduction of the Comcast X1 platform that was expected to reverse fortunes in the era of Netflix and cord cutting.
Those losses, however, underscore how critical sustained wireless performance will be as Shaw shifts its focus to the growth area and scales back wireline operations.
On a conference call with analysts, chief executive Brad Shaw said the company is “absolutely focused on growth businesses.” He said the results show its wireless strategy to provide more data for less is working.
Shaw also announced wins for Freedom’s network and distribution, areas in which it lags the Big Three. It finished deploying a chunk of spectrum that will improve network quality and signed a deal with Loblaw Companies Ltd. to sell Freedom handsets and mobile plans at 100 locations starting as early as this week.
A large portion of its subscriber additions came in December, when the Big Three offered unprecedented data deals that matched Freedom’s offer of 10 gigabytes for $60 per month. The trio also reported high volumes of new customers given the promotions.
Barclays analyst Phillip Huang upgraded Shaw to buy and increased its price target to $32 from $29 to reflect what he believes will be a “new phase of stronger multi-year growth.”
“We believe this is the inflection point for wireless,” he noted to clients.
But TD Securities analyst Vince Valentini questioned whether Shaw worried the numbers were “almost too good in terms of shocking the incumbents,” given Freedom lost customers when the Big Three retaliated in December. He asked whether Shaw was prepared for retaliation if it maintains its pace of growth.
“We believe we’re on a new and sustainable trajectory. We’re confident in our growth potential,” Freedom Mobile chief operating officer Paul McAleese said.
McAleese cautioned investors not to expect that volume of subscriber additions every quarter, noting the importance of finally offering the iPhone in an incredible busy shopping season. He said Freedom had “record levels of customer retention” that helped contribute as customers migrated from cheaper 3G plans to more expense plans on the LTE network. Indeed, average revenue per user increased 5.5 per cent to $38.43.
Shaw president Jay Mehr said he believed the quarter was not a one-off, stating Freedom had “great momentum and that he anticipates subscriber additions around 40,000 going forward.”
He also pointed to regulatory decisions in Shaw’s favour, namely the federal government’s decision to set aside spectrum for smaller players in an upcoming auction and the telecom regulator’s move to lower wholesale roaming rates.
“Everything is proceeding beautifully,” he said.
In a research note, Desjardins analyst Maher Yaghi said Shaw’s strong wireless performance should get the spotlight, but that sustainability is crucial.
“We will be monitoring the results in the coming quarters to see if momentum in wireless is sustained — which is key to the long-term growth thesis,” Yaghi wrote.
While wireless grew, the quarter was lacklustre for wireline.
Shaw lost 21,000 cable and satellite television subscribers and 10,000 telephone subscribers, more than expected on both counts. It added 5,600 internet customers, missing expectations of 13,000 additions.
The company also posted a $417-million restructuring charge related to cutting a quarter of its workforce. Of the 3,300 employees departing over the next two years as part of a voluntary buyout program, 90 per cent work in the stagnating wireline division.