Comcast Q4 Earnings: Best Pay-TV Subscriber Performance In Last Nine Years, NBCUniversal And High-Speed Internet Continue To Grow

February 5th, 2016 by Trefis Team
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Comcast (NASDAQ:CMCSA) released its 2015 fourth quarter and  full year earnings report recently. [1] The company lost 36,000 pay-TV subscribers during the year. However, this performance was an 82% Improvement from 2014, and the best yearly subscriber result in 9 Years. We believe that Comcast’s triple play bundling and the rollout of its X1 platform have helped reduce the company’s pay-TV subscriber churn. NBCUniversal has been an important growth driver for the company in the recent past and once again contributed heavily towards 2015’s revenue growth. NBCUniversal’s numbers were boosted by the unprecedented success of its film studio, Universal. Blockbusters such as Jurassic World, Furious 7, and Minions have helped Universal break the record for highest yearly gross ever by any studio. Furthermore, Comcast added 1.37 million high-speed internet subscribers during the year and we expect the company’s high-speed internet business to continue to bring in more customers throughout our forecast period.

Our price estimate for Comcast stands at $71, implying a premium of around 20% to the market.

See our complete analysis for Comcast

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Best Yearly Pay-TV Subscriber Result In Last Nine Years

A combination of market saturation, fierce competition among each other, and the increased threat from the telcos AT&T (NYSE:T) and Verizon (NYSE:VZ), has led to cable companies in the U.S. experiencing significant challenges in retaining their pay-TV subscribers. Moreover, many consumers are opting for a lower-cost mixture of over-the-air TV, Netflix (NASDAQ:NFLX) and other over-the-top viewing options. Resultantly, the combined subscriber base of major cable providers has gone down from 54.3 million at the start of 2011 to less than 49 million subscribers at the end of Q3 2015. [2] [3] Comcast’s subscribers base stood at less than 22.4 million at the end of 2015, down 36,000 for the year. [4] However, this performance was an 82% Improvement from 2014, and the best yearly subscriber result in 9 Years. [1] Comcast has been actively addressing the issue of subscriber churn by providing advanced features to its customers. The company has accelerated the rollout of its X1 platform, which has advanced features such as online streaming capabilities, on-demand video, better user interface, DVR etc. [5] Comcast credited the X1 platform for helping reduce its video subscriber churn during the earnings call. [6] Comcast’s triple play bundling plans have also played a role in improving subscriber retention. Consequently, we believe that Comcast will continue to lose subscribers in the near term, albeit at a reduced pace.

NBCUniversal’s Growth Boosted By Universal Studios’ Record Year

NBCUniversal constitutes approximately 35% of Comcast’s total value and includes the cable and broadcasting networks, theme parks, and movie businesses. NBCU reported revenues of approximately $28.5 billion for the full year 2015, a 12% jump as compared to the prior year. [7] The main catalyst for NBCU’s impressive showing was the filmed entertainment segment, which grew 46% during the year. Comcast’s Universal movie studio had a banner year in 2015, becoming the first studio to deliver three blockbuster hits in a single year which crossed the $1 billion mark at the global box office – Jurassic World, Furious 7, and Minions. The studio has also benefited from impressive low-budget hits such as Fifty Shades of Grey, Pitch Perfect 2, Straight Outta Compton, etc. This amazing run has helped Universal gross upwards of $7 billion for 2015, and break the previous record for highest yearly gross ever by any studio, $5.52 billion set by Fox Studios in 2014. [8] Additionally, NBCU’s theme park business performed extremely well and generated stable cash flow for the company. The theme park revenues jumped 27%, benefiting from higher attendance and per capita guest spending. The continued success of Orlando’s The Wizarding World of Harry Potter – Diagon Alley, Hollywood’s Fast and Furious: Supercharged, and Halloween Horror Nights also boosted theme park revenues.

High-Speed Internet Continues To Grow

High-speed internet has remained the leading growth factor for the cable companies for quite some time now and we believe that this trend will continue in the near term, driven by an improving economy and growing need for higher speed connectivity. According to a report by Akamai (NASDAQ:AKAM), the U.S. ranks 41st in the world in terms of high-speed internet penetration (speeds exceeding 4 Mbps), with 80% of all internet connections meeting that threshold. [9] Given that only 80% of Americans have high-speed access, there is still much room left for high-speed internet to penetrate, and this will benefit the cable industry in particular as it accounts for 57% of the U.S. high-speed internet market. [10] Comcast itself is the largest player in the industry with approximately 24% market share of the U.S. high-speed internet market.

The overall high-speed internet industry (17 largest players representing 94% of the industry) acquired 2.17 million new subscribers during the first nine months of 2015, taking their total subscriber base to 89.5 million. [10] Comcast added over 900,000 subscribers during the same period, representing approximately 40% of total net additions in the entire industry. The subscriber growth continued in the fourth quarter and the company added 460,000 new subscribers, bringing its high-speed internet subscriber base to 23.33 million by the end of 2015. [7] The high-speed internet business generated revenues of $12.47 billion during the year, 10% higher than the year before. [7] We expect this trend of growth to continue and Comcast will continue to gain high-speed internet subscribers throughout our forecast period.

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Notes:
  1. COMCAST REPORTS 4TH QUARTER AND YEAR END 2015 RESULTS, February 3, 2016, Comcast Investor News [↩] [↩]
  2. MAJOR PAY-TV PROVIDERS LOST ABOUT 190,000 SUBSCRIBERS IN 3Q 2015, November 16, 2015, Leichtman Research Group [↩]
  3. MAJOR MULTI-CHANNEL VIDEO PROVIDERS ADDED ABOUT 380,000 SUBSCRIBERS IN 2011, March 20, 2012, Leichtman Research Group [↩]
  4. Comcast’s SEC Filings [↩]
  5. Comcast’s X1 deployment accelerates to 40K boxes a day, reaches 25% of footprint, October 27, 2015, FierceCable [↩]
  6. Comcast (CMCSA) Brian L. Roberts on Q4 2015 Results – Earnings Call Transcript, February 3, 2016, Seeking Alpha [↩]
  7. Comcast’s SEC Filings [↩] [↩] [↩]
  8. Universal Pictures, with $5.53-billion take, sets global box-office record, August 5, 2015, LA Times [↩]
  9. Akamai’s state of the internet Q3 2015 report, Akamai [↩]
  10. ABOUT 645,000 ADD BROADBAND IN THE THIRD QUARTER OF 2015, November 17, 2015, Leichtman Research Group [↩] [↩]