Comcast recently posted its earnings for the fourth quarter with strong gains in NBCUniversal. The mammoth also managed to turnaround the pay-TV subscriber losses after 26 quarters and added 43,000 new customers.  The company continued to benefit from triple play bundling and posted 11% gain in adjusted operating income. Earnings per share rose by 29% to $0.72. The company also increased stock repurchase program authorization to $7.5 billion. 
On the cost front, programming expenses increased 9% in 2013 reflecting higher rates in step-ups related to certain agreements in increasing retransmission consent fees in sports program and costs. The company expects programming expense growth to accelerate to approximately 9%-10% in 2014 driven by several factors including increases in retransmission consent fees, higher sports programming costs and step-ups for recently completed long-term agreements. 
We currently have $50 price estimate for Comcast, which we will soon update based on the fourth quarter earnings announcement.
- Comcast Q4 Earnings: Best Pay-TV Subscriber Performance In Last Nine Years, NBCUniversal And High-Speed Internet Continue To Grow
- Comcast’s High-Speed Internet Business: Subscriber Base, ARPU Growth Likely
- Comcast Q3 Earnings: NBCUniversal, High Speed Internet Drive Growth
- Comcast Q3 Earnings Preview: NBCUniversal, Subscriber Trends In Focus
- Comcast’s Pay-TV Business: Our Long-Term Projections Suggest Growth In ARPU Will Offset Declining Subscriber Base
- Comcast Q2 Earnings: High Speed Internet Segment And NBCUniversal Lead Revenue Growth
NBCUniversal Posts Strong Growth
NBCUniversal witnessed a solid quarter with a 7% jump in revenues and a 14% rise in operating cash flows.  The company’s broadcast segment revenue increased by 12% to $2.2 billion and operating cash flow surged 55% to $140 million driven by higher primetime ratings from the success of The Voice, The Blacklist and Sunday Night Football.  The Filmed Entertainment segment revenue increased 5% to $1.4 billion and operating cash flow jumped 127% to $192 million as compared to the fourth quarter of 2012, reflecting the strong performance of Despicable Me 2, and a decrease in the amortization of film costs. Revenues from the Theme Parks segment also increased 9% to $566 million, driven by higher guest attendance and increases in per capita spending at the Orlando and Hollywood theme parks. We believe that going forward the company will continue to benefit from a range of additional attractions including Harry Potter and new hotels. The company also has a solid lineup for movies, especially in 2015. The lineup includes some popular titles such as Fast & Furious 7, Jurassic World, Ted 2 and Minions (which is intended as a sequel to Despicable Me).
Pay-TV Subscriber Trend
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 report stated that the U.S. cable TV industry lost 1.8 million subscribers over the 12 month period ending Aug 2013.  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 2013 lost 305,000 video customers as compared to 336,000 it lost in 2012. The fourth quarter marks a growth in pay-TV subs for the first time since 2007. We believe this growth will be short lived as cord cutting continues and alternate video platforms such as Netflix continue to add more subscribers (Read – Netflix Jumps After Strong Results, Will The Growth Sustain?) However, the subscriber losses should come in at a slower rate primarily due to the advanced features such as X1 and Xfinity offered to its subscribers and its triple play bundling options.Notes:
- Comcast’s SEC Filings [↩] [↩] [↩] [↩]
- Comcast’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Jan 28, 2014 [↩]
- Cable TV Providers Hit by Continued Subscriber Erosion, The Hollywood Reporter, Sep 3, 2013 [↩]