Altice (ATUS)

Telecommunications and cable services provider Altice USA (NYSE:ATUS) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 4.4% year on year to $2.15 billion. Its GAAP loss of $0.16 per share was significantly below analysts’ consensus estimates.

Company Overview

Based in Long Island City, Altice USA (NYSE:ATUS) is a telecommunications company offering cable, internet, telephone, and television services across the United States.

The massive physical footprints of cell phone towers, fiber in the ground, or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their landlines and traditional cable subscriptions in favor of wireless communications and streaming video. These trends do mean that more households need cell phone plans and high-speed internet. Companies that successfully serve customers can enjoy high retention rates and pricing power since the options for mobile and internet connectivity in any geography are usually limited.

Competitors in the telecommunications and media services sector include Comcast (NASDAQ:CMCSA), Charter Communications (NASDAQ:CHTR), and DISH Network (NASDAQ:DISH).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Altice’s demand was weak over the last five years as its sales fell at a 2% annual rate. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Altice’s recent performance shows its demand remained suppressed as its revenue has declined by 3.5% annually over the last two years.

Altice also discloses its number of broadband subscribers and pay tv subscribers, which clocked in at 3.96 million and 1.79 million in the latest quarter. Over the last two years, Altice’s broadband subscribers averaged 3.2% year-on-year declines while its pay tv subscribers averaged 12.1% year-on-year declines.

This quarter, Altice reported a rather uninspiring 4.4% year-on-year revenue decline to $2.15 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 4.1% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not accelerate its top-line performance yet.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Altice’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 18.3% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

This quarter, Altice generated an operating profit margin of 16%, down 1.5 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Altice, its EPS declined by 27.4% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, Altice reported EPS at negative $0.16, down from negative $0.05 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Altice’s full-year EPS of negative $0.34 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Altice has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.5%, lousy for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Altice to make large cash investments in working capital and capital expenditures.

Altice burned through $168.6 million of cash in Q1, equivalent to a negative 7.8% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Altice historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.4%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Altice’s ROIC averaged 1.7 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Altice burned through $82.82 million of cash over the last year, and its $25.33 billion of debt exceeds the $279 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Altice’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Altice until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We struggled to find many positives in these results as its EPS and EBITDA missed significantly. Its number of broadband subscribers also fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.5% to $2.52 immediately following the results.

Updated: May 16, 2025 at 10:55 PM EDT

When considering an investment in Altice, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of Altice, we’ll be cheering from the sidelines. First off, its revenue has declined over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its number of broadband subscribers has disappointed. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Altice’s EV-to-EBITDA ratio based on the next 12 months is 0.3x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $2.95 on the company (compared to the current share price of $2.42).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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