Comcast Earnings Preview: What We’re Watching Wednesday

Comcast (NASDAQ:CMCSA) is expected to report its Q3 2011 Wednesday. Comcast’s business is hinged on its pay-TV subscriptions, broadband subscriptions and to some degree the broadcasting and cable networks, now after forming a joint venture with NBCUniversal. While Comcast continues to suffer with problems that plague cable industry such as drop in pay-TV subscriptions, it does have a strategic advantage offered by NBCUniversal that will help it in longer term against competitors like Time Warner Cable (NYSE:TWC), DirecTV (NASDAQ:DTV) and Dish Network (NASDAQ:DISH). We believe that investors should follow the pay-TV subscription trend along with potential uptick in NBCUniversal’s revenues. This will provide hints around how the company is likely to perform in coming quarters.

Our price estimate for Comcast stands at $27, implying a premium of close to 10% to the market price.

See our full analysis for Comcast

Pay-TV Subscriptions Will Drop Again, Broadband May Compensate

We expect Comcast’s pay-TV subscriptions to show a drop, consistent with previous quarters. Not much has changed on pay-TV front except for Comcast’s small initiatives, and it will take some time for their effects to be visible. Such initiatives include experimenting with new programming bundling options, Xbox collaboration, and expressed interest in bringing IPTV service to PCs and Macs.

Nevertheless we expect broadband subscriber gains to offset pay-TV subscriber losses and overall revenues should experience growth driven by improved ARPU (average revenue per user) as more customers go for higher speed broadband services. Going forward, if economic headwinds ease, we may see some improvement in pay-TV subscription trends for Comcast in Q4 2011 and beyond.

NBCUniversal Revenue May Get Support From TV Advertising Market

Despite economic headwinds, the TV advertising market has been doing well, at least through Q2 2011. ^[1] We expect that the uptick in TV advertising market would have continued in Q3 as well, taking cues from the continued rebound that this market has seen ever since coming out of the recession. IBM (NYSE:IBM) and Intel’s (NASDAQ:INTC) earnings demonstrated that companies are willing to spend on technology to improve productivity and stay competitive. We believe that businesses would have also continued their advertising spend to establish a stronger position in the market in order to better face the potential economic headwinds in 2012.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. U.S. TV Ad Market Strong In 2Q – Nomura Securities, ourbusinessnews.com, July 20 2011 [↩]