Comcast Repeats Solid Growth In Broadband And NBCUniversal

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Comcast (NASDAQ:CMCSA) posted its earnings for the third quarter with strong gains in the broadband segment driven by the demand for high speed Internet in the U.S. The company benefited from triple play bundling but pay-TV subscribers continued to decline. Excluding any impact from the Olympics in 2012, NBCUniversal’s third quarter revenue increased 4% and operating cash flow increased 22%, with strong results across all business segments. [1]

The management stated that X2’s marketing would begin by the beginning of next year. [2] X2 is the new version of Comcast’s cloud-based user interface that will touch set-tops, PCs, and mobile devices, and pave the way for a cloud DVR service. The improved ratings at the broadcasting network, the success of Despicable Me 2, higher attendance at the theme parks along with the broadband growth helped Comcast post 41% higher earnings excluding gains reported in last year’s third quarter, related to SpectrumCo’s sale of wireless spectrum licenses and NBC Universal’s sale of its interest in the A&E networks.

We currently have $47 price estimate for Comcast, which we will soon update based on the third quarter earnings announcement.


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Comcast Loses More Pay-TV Subscribers

Comcast in the third quarter lost 129,000 video customers as compared to 117,000 it lost during the same period previous year. However, the pay-TV revenue increased by 3%, driven by the impact of rate increases and an increase in number of customers taking advanced services. [1] Video-on demand saw an uptake of 27% in viewing. The pay-TV business contributes close to 35% of Comcast’s value, according to our estimates. The cable industry has been losing video subscribers for quite some time now. SNL Kagan in a recent report stated that the U.S. cable TV industry lost 1.8 million subscribers over the last 12 months. [3] This can be largely attributed to the rise of alternate video platforms such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN), and increased competition from telcos. Comcast in particular has developed its Xfinity Streampix service, catering to the demand for content streaming. We believe that Comcast will be able to reduce its pay-TV subscriber losses with the help of its triple play bundling options, along with the advanced features such as X1/X2 and Xfinity Streampix.

Comcast Benefits From Increasing Demand For Broadband

Broadband was again the largest contributor to cable revenue growth, with revenue increasing 8% to $2.6 billion, driven by continued growth in the customer base. Comcast added 297,000 new broadband customers in the third quarter. Business Services revenues also surged 26% to $836 million. [2] There is a boom in demand for broadband, and a growing need for speed and connectivity in the U.S. The use of multiple devices and higher penetration of smartphones is aiding the overall demand for high-speed Internet. As per the latest data available, only 72% of Americans use broadband at home. [4] Clearly, there is still much room left for broadband to penetrate, and this will benefit the cable industry in particular, as it accounts for 58% of the U.S. broadband market. Comcast itself is the largest player in the industry with close to 25% market share of the U.S. broadband market. Given the surge in demand, we expect Comcast to continue to gain broadband subscribers in the near term.

NBCUniversal Sees Growth Across All Segments

In the third quarter, NBCUniveral witnessed robust growth across all segments. The revenue decreased 14% and operating cash flow increased 10% on a reported basis. However, if we exclude the impact of the Olympics, revenue increased 4% and operating cash flow increased 22% year-over-year. [2]

Cable Networks And Broadcasting Stay Firm

Cable networks revenue increased by 4% to $2.2 billion, driven by distribution and advertising revenue growth. The company stated that higher pricing offset the ratings pressure at some of its cable networks. [1] On the cost front, there was a 4% increase in programming and production costs due to increased investments in programming, including launch of the English Premier League on NBC Sports Network. [2]

The broadcasting network has seen growth in ratings driven by programming such as The Voice, The Blacklist and Sunday Night Football. Football is averaging 22.7 million viewers, marking the best seven-week start for an NFL primetime package in 17 years and up 5% from last year. [5] We believe that the improved ratings and new programming will continue to drive revenue growth for NBCUniversal in the near term.

Movie And Theme Parks Business Continue To Shine

The revenues at filmed entertainment division increased by 3% to $1.4 billion and operating income (before depreciation and amortization) surged 164% to $189 million, driven by the success of Despicable Me 2. [1] The movie cost a modest $76 million to produce and so far it has grossed close to $900 million in box-office sales globally. [6] The studio will release four more movies in the 2013, including 47 Ronin and Lone Survivor.

Theme Parks revenues increased by 8% to $661 million, driven by increased per capita spending at both – Orlando and Hollywood theme parks and higher attendance at Orlando, fueled by the successful opening of the new Transformers attraction. We believe theme parks is an important business and it will continue to drive growth for Comcast, as it offers a platform to cross-market the company’s other products and services (Read More – Comcast Gains As More Visitors Flock To Universal Theme Parks).

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Notes:
  1. Comcast’s SEC Filings [] [] [] []
  2. Comcast’s CEO Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, Oct 30, 2013 [] [] [] []
  3. Cable TV Providers Hit by Continued Subscriber Erosion, The Hollywood Reporter, Sep 3, 2013 []
  4. Faster & faster! The US now has 82.4 million broadband connections, Gigaom, May 21, 2013 []
  5. NBC’s “Sunday Night Football” Scores Best 7-Week Start for NFL Primetime Package in 17 Years, The Futon Critic, Oct 22, 2013 []
  6. Despicable Me 2, Box Office Mojo, Oct 22, 2013 []
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