As Comcast (NASDAQ:CMCSA) reported its Q1 2012 earnings, we were surprised to see that the pay-TV subscriber losses did not show a significant improvement compared to Q1 2011. This was a little unexpected given the significant promise that the company showed in the fourth quarter of last year in this regard. Back then, even though its cable rival Time Warner Cable (NYSE:TWC) lost well over 100,000 pay-TV subscribers, Comcast lost just 17,000 which was a big improvement over its Q4 2010 subscriber losses of 135,000.  Do the latest results show some promise? We think so if we dig into a few details.
Firstly, the results show a definite trend – Comcast’s pay-TV subscriber losses are not getting worse, or even sustaining the same pace. There is a clear evidence of improvement, which indicates that at some point the company will start gaining subscribers. This conclusion becomes stronger if we view the trend in light of Comcast’s commitment to improving its overall service amid increasing competition from telcos AT&T (NYSE:T) and Verizon (NYSE:VZ).
The proportion of subscribers opting for advanced services such as HD/DVR and bundled offerings increased this quarter, indicating a long-term commitment and credit quality from these subscribers.  This bodes well for Comcast in the long run. Further, about 2 million subscribers have already taken up Xfinity Streampix.  Even though competition from telcos expanded from 36% to 38% of Comcast’s footprint, the company saw an improvement in subscriber losses.  And this happened despite the price increase that was implemented in the majority of its footprint.
These small details point toward the development of a more loyal subscriber base. Although we expect Q2 2012 subscriber losses to be higher due to seasonality, we expect that Comcast may come quite close to breaking away from the plaguing pay-TV subscriber loss trend by the end of this year.
Our current price estimate for Comcast stands at $26.60, implying a discount of about 15% to the market price. We are reviewing our estimates in light of the recent earnings.Notes: