Comcast (NASDAQ:CMCSA) will release its Q1 2012 earnings results on May 2nd, and we expect the momentum in subscriber number improvement built over the last quarter to continue. We also expect NBCUniversal’s performance to be a mixed bag, driven by the improvement in cable networks but a relatively stunted performance by NBC Broadcasting. Additionally, we will keep an eye on Comcast’s streaming strategy as the company continues with its efforts to become a one-stop shop for content viewing needs to differentiate itself against competitors DirecTV (NASDAQ:DTV), Dish Network (NASDAQ:DISH), AT&T (NYSE:T), and Time Warner Cable (NYSE:TWC).
Expect Pay-TV Subscriber Improvement
Comcast brought down its pay-TV subscriber losses significantly last quarter when it lost just 17,000 net pay-TV subscribers. This was not merely a fluke, but a result of conscious efforts to improve the service. Since then, Comcast has made more efforts to continue this positive momentum. The company launched Xfinity Streampix streaming offering, brought HBO Go to its Xbox customers, removed broadband cap on its Xfinity on-demand service while accessing it via Xbox, and jointly marketed its service with Verizon (see How Comcast Benefits From Joint Marketing With Verizon). We expect these efforts to be additive to Comcast’s service levels and help it retain customers.
NBCUniversal May Be A Mixed Bag
We estimate that NBCUniversal constitutes about 16% to Comcast’s value. Within this, the most important business is cable networks followed by broadcasting. NBC’s cable networks revenues grew at healthy 10.6% driven by balanced increments in subscription fee as well as advertising revenues. We expect this business will continue to perform well.
However, the broadcasting business does not seem to be doing that well. In the current viewing season, NBC is behind the other 3 big broadcasting networks with an average prime time viewership of 7.51 million viewers.  This figure is lesser than the viewership that the network has recorded in the past few years. Clearly, NBC needs to do some work in this area.
Investors should keep an eye out for Comcast’s update on its streaming strategy. The company seems to be facing some pressure from other firms over net neutrality issues and its decision to launch Xfinity Streampix was a major one. The media industry is facing a significant shift where ease and flexibility of content access is becoming important.
Comcast’s service is going to battle against established players such as Netflix (NASDAQ:NFLX). Comcast has deep pockets and has the capability to spend more than Netflix ever could, but will this be enough to drive subscriber additions? A lot more goes into a streaming service than just content, although content is the primary driver. Nevertheless, we expect the company’s pay-TV subscriber losses might turn into positive adds sometime this year, as a result of this initiative.
Our price estimate for Comcast stands at $26.60, implying a discount of about 10% to the current market price.Notes:
- 2011-12 Season: FOX in the Lead In 18-49 Ratings; CBS Tops Viewership Through Week 31 Ending April 22, 2012, tvbythenumbers.com, Apr 24 2012 [↩]