Comcast Adds Pay-TV Subscribers For The Second Consecutive Quarter; Q1 Results Impressive With Strong Growth Across The Segments

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Comcast (NASDAQ:CMCSA) recently posted its earnings for the first quarter with strong gains across the segments. NBCUniversal saw a fantastic quarter reflecting benefits from the Winter Olympics, which generated $1.1 billion in revenues. [1] The cable giant added 24,000 pay-TV subscribers during the quarter as compared to loss of 25,000 subscribers in the prior year quarter. This is the second consecutive quarter of gains for Comcast after 26 quarters of video subscriber losses. It must be noted that Comcast has changed the method to measure the subscriber additions from an equivalent billing units (EBU) approach to billable customers method. If we consider the EBU approach, which was followed till last quarter, the company added 4,000 video subscribers as compared to a loss of 60,000 in the prior year quarter. [1]

The company continued to benefit from triple play bundling and posted 14% jump in overall revenues and 16% gain in operating income. Earnings per share rose by 32% to $0.71. [2] On the cost front, programming expenses increased 9% driven by increases in retransmission consent fees, higher sports programming costs, and step-ups for recently completed long-term agreements. Overall, the mammoth posted solid results with balanced growth across the segments.

We currently have $56 price estimate for Comcast, which we will soon update based on the first quarter earnings announcement.

 

See our complete analysis for Comcast

NBCUniversal Sees Strong Growth

NBCUniversal witnessed a strong quarter with 29% jump in revenues and a 38% rise in operating income. The company’s broadcasting segment revenue surged 73% to $2.62 billion and operating income rose to $122 million as compared to a loss of $35 million in the prior year quarter. [3] This increase reflects the benefits associated with the Winter Olympics. However, even if we exclude $846 million of revenue associated with the 2014 Sochi Olympics, broadcasting revenue increased 17% primarily due to higher advertising revenue related to an increase in audience ratings. The company stated that NBC is positioned to end the full season as the No. 1 network in the coveted 18 to 49 demographics for prime time and late night. [1]

NBCUniversal’s movie division benefited from the performance of its recent releases, Ride Along and Lone Survivor and the international performance of The Wolf of Wall Street. The revenues at Filmed Entertainment division increased by 11% to $1.35 billion and operating income soared over 300% to $288 million as compared to the prior year period, reflecting a decrease in the amortization of film costs. [3] We expect the broadcasting segment to perform well throughout 2014 primarily due to the advertising benefits that will come from the U.S. midterm elections.

Cable Communications Sees Continued Growth Into 2014

Comcast’s cable communication segment includes its pay-TV, broadband and voice operations. 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. The pay-TV operators in the U.S. lost over 104,000 subscribers in 2013. [4] This can be largely attributed to a combination of market saturation, fierce competition, and the increased focus of 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. Comcast turned around its subscriber losses in the previous quarter. However, this growth could be short lived as cord cutting continues and alternate video platforms such as Netflix continue to add more subscribers (Read – Netflix Continues To Benefit From Content Superiority)

On the other hand, broadband has been the largest contributor to cable revenue growth. During the first quarter, Comcast added 383,000 broadband subscribers. This led to 9% growth in broadband revenues to $2.75 billion. [3] The U.S. had 75% of the population on broadband connections and this leaves enough room for broadband to penetrate. [5] We believe that Comcast will continue to add broadband subscribers in the coming years and drive growth for the company (Read More On Broadband Growth – Comcast Will Continue To Benefit From U.S. Broadband Growth)

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Notes:
  1. Comcast’s CEO Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, Apr 22, 2014 [] [] []
  2. Comcast’s SEC Filings []
  3. ref:1 [] [] []
  4. Major Multi-Channel Video Providers Lost About 105,000 Subscribers in 2013, Leichtman Research Group, Mar 14, 2014 []
  5. The State of the Internet, Akamai []
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