Broadband Growth Will Be Key Driver To Comcast’s Earnings

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Comcast (NASDAQ:CMCSA) is going to release its Q2 2012 earnings results on Wednesday, August 1, and we expect some good results given the recent trends and Comcast’s continued efforts. The last quarter’s results indicated that, although small, the improvement in pay-TV business exists and, slowly and steadily, the company should be able to turn-around its subscriber trends. Here are a few things to watch out for in the upcoming earnings.

See our complete analysis for Comcast

Seasonally Weak Quarter – Expect Continued Pay-TV Subscriber Losses

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There are a couple of opposing factors to consider while gauging the company’s expected performance in pay-TV business in Q2.

Firstly, the second quarter tends to be seasonally weak for pay-TV companies and this is evident from past years’ results. In fact, in a recently filed document, Dish Network (NASDAQ:DISH) disclosed that it actually lost subscribers after two consecutive quarters of net gain and exceptional improvements.

Secondly, Comcast has been enhancing its service and customer service, and this has helped it improve subscriber trends in the last couple of quarters. Nevertheless, losses will be there.

On the other hand, ARPU (average revenue per user) for pay-TV subscribers is likely to continue improving given the adoption of HD and DVR services as well as Comcast’s Xfinity Streampix service.

Expect Broadband Growth

Broadband is increasingly becoming a critical business for cable companies, including Comcast. Given the shift of video viewing to Internet, growth and control of broadband network is essential for survival of pay-TV companies. Comcast has been pushing hard and gaining subscribers along with seeing an ARPU improvement for the last couple of years. The adoption of faster broadband is playing a vital role. Although the company announced a trial of tiered data pricing a few months ago, the impact of the implementation is not visible yet. Broadband contributes more than 30% of Comcast’s value, per our estimates.

Cable Networks Remain Important

We estimate that NBCUniversal constitutes close to 15% of Comcast’s value. Within this division, almost 80% of profits come from cable networks and, hence, investors should watch out for the results of this segment in particular. We expect growth in cable networks driven by price increment.

On the other hand, NBC Broadcasting, which is the next biggest profit generator for NBCUniversal, continues to struggle against other big broadcasters in terms of ratings. We do not expect any significant improvement this quarter either. NBCUniversal spent heavily on 2012 London Olympics rights, and this may depress the profits slightly in the next quarter. As far as Q2 is concerned, the Olympics will not have any effect.

Our price estimate for Comcast stands at $32.50 roughly in-line with the market price.

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