Comcast (NASDAQ:CMCSA) will report its Q1 2013 earnings on May 1. Given the recent trends, we expect the company to report healthy growth in its broadband business. In addition to this, we expect pay-TV subscriber losses to continue, although there is likely to be an improvement over Q1 2012. NBCUniversal’s results will benefit from improved ratings for NBC broadcasting network due to the company’s focus on original content and programming.
Pay-TV Business Picking Up
We estimate that the cable TV business constitutes around 35% of Comcast’s value. Cable providers have been struggling in the U.S. as customers continue to shift to satellite companies and telcos. However, the improvement is visible for Comcast as it lost only 7,000 pay-TV subscribers in Q4 2012, as compared to a loss of 17,000 in Q4 2011.  We expect this improvement to continue in Q1 2013.
Moreover, the company has tremendous opportunity to gain from its Xfinity Streampix and X1 services. These services have enhanced its pay-TV offerings by providing traditional TV shows and Xfinity on-demand content across variety of devices. Xfinity Streampix offers an instant movie viewing both in and outside home on multiple platforms such as TV sets, computers and mobile devices. Given the increased usage of tablets and other mobile devices for video streaming, we expect Comcast to gain from its streaming efforts. The company has also started offering several innovative products such as the X1 services, various home security services and developing new content for multi-platform on-demand services. X1 is a cloud-based interface that integrates video content, applications and social media for a new television experience. Given these technological initiatives, we expect Comcast to eventually turnaround its pay-TV subscriber losses.
We estimate that NBC and Comcast content constitute roughly 25% of the company’s value. Earlier this year, the company agreed to buy remaining 49% stake in NBCU from General Electric for $16.7 billion.  According to Comcast, it was a good time to buy the stake as it would have cost much more had the company waited. TV ratings were poor for NBC in sweep months of last year, and the network landed at fifth place, behind the Spanish-language Univision.  However, NBC has shown signs of improvement thereafter.
For the new season of English Premier League (EPL), the network will air all 380 games.  Programs such as ‘The Voice’ have been pushing the ratings higher for the network. According to most current Nielsen averages for December 31, 2012 through March 31 of this year, the NBCU-owned ‘USA’ averaged 3.07 million viewers in primetime, on par with last year and comfortably ahead of History, Disney Channel and TBS.  We estimate that NBC’s broadcasting business will earn little under $7.5 billion in revenues in 2013.
Continued Improvement In Broadband
The broadband business has done well for Comcast due to the rising demand for faster Internet and decline of DSL Internet connections. The trend has been more or less the same for the past few quarters. For the last quarter, Comcast reported 19.4 million broadband subscribers, an increase of 1.2 million, as compared to that in 2011.  We estimate that the broadband business constitutes roughly 25% of the company’s value. We expect Comcast to continue to gain broadband subscribers throughout 2013, and command a share of 21% in the U.S. broadband market by the year end.
Comcast expects programming costs to grow by a low double-digit rate this year. ((ref:1)) This might put some pressure on margins, but the company will offset that by increasing prices, promoting advanced services such as HD and DVR, and by creating operational efficiencies.
Our price estimate for Comcast stand sat $46, implying a premium of over 10% to the market price.Notes:
- Comcast’s SEC Filings [↩] [↩]
- COMCAST TO ACQUIRE GENERAL ELECTRIC’S 49% COMMON EQUITY OWNERSHIP INTEREST IN NBCUNIVERSAL, Comcast [↩]
- NBC To Finish 5th In Sweeps For First Time; Network Falls Behind Univision, Deadline, Feb 21, 2013 [↩]
- NBC Is Going All-In With The English Premier League, And It’s Huge For Soccer Fans, Business Insider, Apr 16, 2013 [↩]
- ‘Suits,’ ‘WWE Raw’ Help USA Lead Cable Network Ratings, Variety, Apr 3, 2013 [↩]