Comcast (NASDAQ:CMCSA) will report its Q2 2013 earnings on July 31. While we expect a steady growth in the broadband business, the company’s pay-TV subscribers will continue to decline. NBCUniversal’s results will benefit from improved ratings for NBC broadcasting network due to the company’s focus on original content and programming. Universal Pictures did fairly well on the box office with hits such as Fast and Furious 6, which will strengthen overall NBCUniversal’s results.
The Broadband Heat
The broadband business has done well for Comcast due to the rising demand for faster Internet and decline of DSL Internet connections. For the last quarter, Comcast reported 19.8 million broadband subscribers. We estimate that the broadband business constitutes roughly 25% of the company’s value. The boom in demand for broadband in the U.S. can be primarily attributed to a resurgent housing market and stronger economy, along with the growing need for speed and connectivity. While 94% of the U.S. homes have access to broadband with speeds of 10 MBPS or higher, more than two-thirds of U.S. homes have an Internet connection as compared to just more than 4% in 2000.  We expect Comcast to continue to gain broadband subscribers throughout 2013 due to the increased demand driven by increased use of multiple devices and higher penetration of smartphones. In the last quarter, Comcast posted strong gains on the back of triple play bundling, which is something Time Warner Cable (NYSE:TWC) has been shying away from. (Read – Time Warner Cable’s Shifts Away From Triple-Play As Broadband Carries Results) It will be interesting to see how the triple-play bundle pans out for Comcast in this quarter.
Pay-TV Subscriber Churn
For cable companies in the U.S., the past several quarters have been tough as they experienced significant challenges in retaining their pay-TV subscribers. While we expect this trend to continue for the cable companies in the near term, the subscriber losses will reduce eventually as companies like Comcast have been actively addressing this issue by providing additional features such as X1 and Xfinity to their subscribers. According to a research by Leichtman Research Group, for the first time in Q1 2013, there has been a net industry-wide pay-TV subscriber loss over a four-quarter period in the past 10 years. These industry-wide losses reflect a combination of a saturated market, an increased focus from providers on acquiring higher-value subscribers. Moreover, some consumers opt for a lower-cost mixture of over-the-air TV, Netflix (NASDAQ:NFLX) and other over-the-top viewing options.  It will be interesting to see if the advanced features of X1 and Xfinity along with the company’s triple-play and quadruple-play offers, can help it reduce the subscriber losses as compared to 2012.
Growth In NBCUniversal
We estimate that NBC and Comcast content constitute roughly 25% of the company’s value. In the last quarter, NBCU’s theme park revenues grew by 12% and cable networks grew by 5% while the broadcasting revenues tumbled by 19%. This decline in broadcasting was primarily due to the absence of Super Bowl broadcast. However, the network’s hit singing show The Voice pushed the network’s ratings upwards in the second quarter. The show was ranked third among all series in 18-49 demo behind Sunday Night Football and The Big Bang Theory.  While the singing show will help the company’s broadcasting business in this quarter, the network needs more shows with original content and programming to drive the growth. On the other hand, theme parks business has been doing well and provides stable cash flows for the company. (Read – What Does Theme Parks Mean To Comcast?) Universal Studios recently added the Transformers – The Ride 3D to its Orlando based theme park. Such attractions including The Wizarding World Of Harry Potter will boost the theme parks attendance.  Universal Pictures’ Fast and Furious 6 has already passed $500 million mark at the worldwide box office in this quarter, faster than any film in the studio’s history and will boost the revenues for filmed entertainment division in this quarter (Read – Universal Pictures’ Fast And Furious Is Hauling In Quick Sales For Comcast) 
Our price estimate for Comcast stands at $46, implying a premium of over 5% to the market price.Notes:
- Broadband is booming in America, UPI, Jul 19, 2013 [↩]
- Multi-Channel Video Industry Has First-Ever Annual Net Subscriber Loss, Leichtman Research Group, May 20, 2013 [↩]
- NBC’s ‘The Voice’ Rises With Performance Finale Monday, But is Down From Fall, Variety, Jun 18, 2013 [↩]
- Universal Studios Brings Transformers The Ride 3D To Orlando Park, Trefis, Jul 1, 2013 [↩]
- Box Office Milestone: ‘Fast & Furious 6′ Passes $500 Million Worldwide, The Hollywood Reporter, Jun 6, 2013 [↩]