Comcast Q3 Earnings Preview: NBCUniversal, Subscriber Trends In Focus

Comcast (NASDAQ:CMCSA) will report its third quarter results on October 27. ^[1] The company’s media arm, NBCUniversal, has been an important growth driver for the company in the past few years. We believe that NBCUniversal’s numbers will be boosted by the unprecedented success of its film studio. Blockbusters such as Jurassic World, Furious 7 and Minions have helped Universal Studios break the record for highest yearly gross ever by a studio. Furthermore, we expect Comcast’s high-speed internet business to continue to experience subscriber growth, while the company’s pay-TV subscriber base will likely continue to shrink. However, Comcast has been able to slow down its pay-TV subscriber losses in previous quarters primarily due to its triple play bundling packages, and we believe that the trend will continue.

Our price estimate for Comcast stands at $67, implying a premium of close to 10% to the market.

See our complete analysis for Comcast

Universal’s Dominant Year Will Contribute To NBCUniversal’s Growth

NBCUniversal constitutes approximately one-third of Comcast’s total value, according to our estimates, and includes the cable and broadcasting networks, theme parks and movie businesses. Comcast’s Universal movie studio has had a banner year so far, becoming the first studio to deliver three blockbuster hits in a single year that crossed the $1 billion mark at the global box office – Jurassic World, Furious 7 and Minions. Universal’s exceptional performance has helped the studio break the record for highest yearly gross ever by any studio, $5.52 billion, in just 7 months. ^[2] We expect the studio’s full-year revenues to be close to $6.7 billion. As for the quarter in question, Universal’s results will be boosted by Minions’ impressive haul. The studio also had a number of lower-budget hits such as Trainwreck, Straight Outta Compton and The Visit. Universal has been successfully implementing its strategy of producing and distributing successful lower-budget films for a while now, and the studio is looking to continue that (related – Comcast: Fifty Shades’ Performance Epitomizes Universal’s Low-Budget Strategy).

NBCUniversal’s broadcasting network NBC has held its own against rivals, helped by the success of its programming. The network has ended the last two regular TV seasons at the top spot in the highly coveted 18-49 demo category. ^[3] NBC has benefited from the success of its shows such as The Voice, The Blacklist and Chicago PD, and looks to have found another hit in its new drama Blindspot. The freshman drama became the first new series of the 2015-16 TV season to be picked up for the full season. ^[4] Blindspot received a full season order based on its impressive ratings, with its first three episodes averaging a 2.7 rating/9 share in the 18-49 adults demo and close to 10 million viewers overall in live-plus-same-day results. Ratings impact the advertising income for content owners, and NBC derives around two-thirds of its revenues from advertising income. NBCUniversal’s theme park business is also trending well and is generating stable cash flows for the company. The theme park revenues have jumped close to 30% for the first six months of the year, benefiting from higher attendance and per capita guest spending. ^[5] We expect NBCUniversal to continue to perform exceedingly well for Comcast in the coming quarters.

Rate Of Subscriber Losses In Pay-TV Segment Will Come Down

According to our estimates, pay-TV operations contribute just shy of 29% to Comcast’s stock value. Subscriber counts have declined rapidly for cable companies over the past few years, but Comcast has managed to slow down the pace of decline in its subscriber base. The pay-TV provider’s subscriber base shrank by 194,000 subscribers last year as compared to 267,000 subscribers the year before. ^[5] Comcast’s improved subscriber retention is due in large part to its triple play bundling plans. However, Comcast’s pay-TV segment still operates in a market that faces severe headwinds in the form of fierce competition, market saturation and the rise of alternative video platforms such as Netflix (NASDAQ:NFLX). Consequently, we believe that Comcast will continue to lose subscribers in 2015, albeit at a reduced pace. Taking a long-term perspective, we believe that Comcast’s market share of the pay-TV market will trend downwards throughout our forecast period, decreasing from 22.3% in 2014 to around 21% by 2022.

High-Speed Internet Segment Maintains Strong Performance

Comcast’s high-speed internet segment has been a significant growth driver for the company in the past few years, due to rising demand for faster Internet and a corresponding decline in DSL Internet connections. The company’s high-speed internet subscriber base has grown from less than 15 million subscribers in 2008 to more than 22.5 million as of June 30, 2015. ^[5] Almost half of Comcast’s subscribers receive internet speeds exceeding 50 Mbps, reflecting the demand for high-speed connectivity. ^[6] Currently, 77% of all internet connections in the United States are high-speed Internet connections (exceeding 4Mbps) and this figure is estimated to reach 90% in the long run. ^[7] We believe that Comcast will be able to increase its market share of the high-speed internet market from below 23% in 2014 to almost 25% by 2022.

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1. COMCAST TO HOST THIRD QUARTER 2015 EARNINGS CONFERENCE CALL, September 15, 2015, Comcast News Release [↩]
2. Universal Pictures, with $5.53-billion take, sets global box-office record, August 5, 2015, LA Times [↩]
3. Ratings: NBC Wins 2014-15 TV Season; CBS Is Still Most Watched Network, May 20, 2015, TVLine [↩]
4. NBC’s ‘Blindspot’ Gets Full-Season Pickup, October 9, 2015, The Hollywood Reporter [↩]
5. Comcast’s SEC Filings [↩] [↩] [↩]
6. Comcast Corporations’ (CMCSA) CEO Brian Roberts on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha [↩]
7. Akamai’s state of the Internet Q2 2015, Akamai [↩]