Triple-Play Bundling Drives Comcast Earnings

Comcast (NASDAQ:CMCSA) recently posted its earnings for the first quarter. While the company reported a gain in broadband and voice subscribers, video subscribers continued to decline. However, this decline was less compared to its peers such as Time Warner Cable (NYSE:TWC). In addition to this, higher video subscription prices boosted Comcast’s revenues. NBCUniversal’s (NBCU) revenues declined due to dismal ratings, as The Voice kicked in very late in the quarter. Going forward, as the company prepares a nationwide roll out of X1 services, we expect its pay-TV subscribers to decline at a slower rate. Unlike Time Warner Cable, Comcast will continue to market its triple play bundles.

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Broadband And Voice Growth Continues

Comcast continued to expand its broadband business as it added another 433,000 new customers in the first quarter. ^[1] The demand for broadband in the U.S. continues to rise due to the increased use of multiple devices and higher penetration of smart phones. We expect Comcast to continue to gain broadband subscribers throughout 2013, and command a share of 21% in the U.S. broadband market by the year end.

The company also reported a healthy growth in its voice subscriptions, adding 211,000 new customers mainly through its triple-play bundles. ^[1] It is interesting to see Comcast’s success in this arena given that its competitor Time Warner Cable reported a decline in the number of voice subscribers last week and decided to shift away from triple-play bundling. Although for the time being this strategy is working out well for Comcast, we don’t expect the voice subscriber growth to continue at this pace in the future

Reviving Pay-TV Business

As expected, Comcast’s pay-TV business suffered as customers continued to move away from traditional cable to satellite and fiber-based services. The company reported a loss of 60,000 net pay-TV subscribers as compared to 37,000 in the first quarter of 2012. ^[1] This loss can also be attributed to the increase in Comcast’s prices. However, higher subscription prices helped the company improve its revenues from the residential pay-TV division, which registered a growth of 4%. ^[1]

The company continues to focus on reviving its pay-TV business and is planning a nationwide roll out of its X1 services. ^[2] X1 is a cloud-based interface that integrates video content, applications and social media for a new television experience. The advanced features of X1 along with the company’s triple-play and quadruple-play offers, can help it retain its pay-TV customers. Moreover, services such as Xfinity Streampix have enhanced the company’s pay-TV offerings by providing traditional TV shows and Xfinity on-demand content across variety of devices. Xfinity Streampix offers an instant movie viewing anywhere on multiple platforms such as TV sets, computers and mobile devices. Given the increased usage of tablets and other mobile devices for video streaming, we expect Comcast to gain from its streaming efforts.

Revenues Declined At NBCU

Comcast took full control of NBCU in the first quarter with a $16.7 billion deal. The division suffered a 2.4% dip in the quarterly revenues due to weakness in its broadcasting business. While theme park revenues surged 12.2% and cable networks grew by 4.6%, broadcasting revenues tumbled by 18.5%. ^[1] This decline can be primarily attributed to the absence of Super Bowl broadcast, which generated $259 million in advertising revenues last year. The network was further hurt because its hit singing show The Voice stayed off the schedule until late in the quarter. The company’s management acknowledged the need of more shows like The Voice which can boost the network’s ratings. ^[3]

Theme parks business did well driven by the attendance growth due to the timing of holidays. However, capital expenditures jumped 15.9% amounting to $1.4 billion as the NBCUniversal increased its investments in theme parks. The company is in the process of bringing Harry Potter at the Hollywood theme park and Transformers to Orlando theme park. ^[3] Both of these attractions will boost the theme parks business.

We are currently in the process of updating our model for Comcast in the light of recent earnings. Our price estimate for Comcast stand sat $46, implying a premium of over 10% to the market price.

1. Comcast SEC Filings [↩] [↩] [↩] [↩] [↩]
2. Comcast Corporation’s CEO Discusses Q1 2013 Results – Earnings Call Transcript, Seeking Alpha, May 1, 2013 [↩]
3. ref:1 [↩] [↩]