Improved cable business metrics and a surge in NBCUniversal revenues were the highlights of Comcast’s (NASDAQ:CMCSA) recently released Q3 2012 earnings. Pay-TV subscriber losses came down as we expected, and Comcast continued to benefit from adoption of advanced services such as HD/DVR. To add to that, internet and voice subscriber gains remained healthy along with ARPU (average revenue per subscriber) growth.
The NBCUniversal segment benefited from Olympics and the unit increased its cash pool significantly by selling its stake in A&E. The big picture is that the trends remain favorable for Comcast if the company can contain the rising programming and marketing costs. As far as Q3 is concerned, the programming and overall costs were under control despite some increase in marketing spend.
Xfinity Brand, HD/DVR and Multi-Play Bundles Boosting Cable Business Growth
Comcast reduced its pay-TV subscriber losses to 117,000 in Q3 2012, which was an improvement of about 48,000 subscribers compared to Q3 2011.  The losses came down significantly even on sequential comparison. In addition to this, the company gained 287,000 broadband subscribers and 123,000 digital voice subscribers. 
If we look at the digital penetration in Comcast’s pay-TV subscriber base, the figure has improved consistently each quarter by 1%-2%, amounting to 95.7% at the end of Q3 2012.  With that pace, the company could transform into a completely digital platform in 1-2 years. This will significantly help Comcast’s pay-TV business as most losses are concentrated on analog base. The company has been spending heavily on the marketing front, as evident from increase in its sales and marketing costs. Comcast has been promoting its Xfinity brand across pay-TV, digital voice and broadband customers and that seems to be paying off. Additionally, approximately 75% of Comcast’s subscribers are now using double-play bundles and approximately 40% are on triple play.  Needless to say, having bundled service results in benefits for both subscribers and the service providers.
The adoption of advanced services such as HD and DVR is also helping the ARPU metric for Comcast’s pay-TV business. Comcast added about 101,000 such subscribers in Q3, bringing the total penetration of HD/DVR in its digital base to 54%.  The company has managed this without any substantial increase in set-top box related capital expenditures. In fact, capital expenditures for the first 9 months of 2012 are down as proportion of revenues compared to the same period last year.
NBC Gets Boost From Olympics, Sale Of A&E
NBCUniversal’s broadcasting segment grew by 84% due to boost from Olympics revenues.  If we exclude the Olympics, the overall NBCUniversal segment achieved healthy growth of 8% driven by the growth in subscription revenues of cable networks, an increase in ad pricing and a good performance from the movie business. This is where we should concentrate as the Olympics was more or less a break-even event for the company, and the profitability has yet to be established for such a huge event.
The good thing is that subscription revenues continue to grow at a healthy pace (6%) and NBC Broadcasting Network is off to a good start in the new season (see NBC Off To A Good Start, What Does That Mean For Comcast?). Additionally, the sale of A&E networks has increased the cash pool available for NBC’s revival and growth.The company could use this money to revamp its programming and focus on more original shows.
We are in the process of updating our price estimate in the light of recent results and will have an update ready soon.
Our price estimate for Comcast stands at $37, roughly in-line with the market price.Notes: