Comcast Earnings Preview: Revenue To Grow In Q4, Albeit At A Slower Rate

Comcast (NASDAQ:CMCSA) is set to report its Q4 earnings on Thursday, January 26. ^[1] In the first nine months of 2016, the company reported 7.4% growth in revenues; however, as there was a lack of TV programming in the last quarter of 2016, we expect that the revenues from the cable network and broadcast TV vertical to report marginal growth. Nevertheless, the Cable TV Communication and Broadband Internet segments should see strong growth in Q4.

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NBC Universal, Content Business To Report Mid-Single Digit Growth

Comcast’s Content business includes its regional sports and news networks, some Comcast interactive media businesses (digital media properties such as the Xfinity TV app) and channels such as E! and the Golf Channel. NBC contributes its own cable networks, broadcasting, filmed entertainment, and theme parks.

During the first nine months of the fiscal year 2016, the company reported that its revenues for NBC Universal and Comcast Content (reported under cable network, broadcasting television, theme park and filmed entertainment) grew by 5.8%.

The Cable Networks vertical reported growth of over 10.3% during the first nine months, as distribution revenue from the broadcast of the 2016 Rio Olympics in August 2016 boosted the top line. Furthermore, increases in the contractual rates charged under distribution agreements and contract renewals boosted revenues. While increases in contractual rates will continue to buoy revenues in Q4, a lack of programming content might offset that growth. Furthermore, a decline in the number of subscribers at its cable networks will adversely impact revenue growth in Q4.

The Broadcasting TV division reported 21% growth in revenues due to increases in advertising revenue, distribution and content licensing revenue. Additionally, the increases in advertising revenue were primarily due to the broadcast of the 2016 Rio Olympics. Advertising revenue also increased due to higher prices for advertising units sold, which was partially offset by declines in audience ratings. For Q4, we expect that revenue to decline marginally due to a relative dearth of TV content, and therefore lower ad revenue.

Cable TV Vertical Grows

The Cable TV business accounts for over 27% of our price estimate for Comcast’s stock. For the first nine months of 2016, the company’s cable TV revenue grew by 3.7% to $16.7 billion, primarily due to rate adjustments and, to a lesser extent, increases in the number of residential customers subscribing to additional services such as premium channels and advanced services. Additionally, the company reported that its churn rate was less than expected, as a result of its continued deployment of the digital X1 platform. The company reported a net addition of 81,000 new video cable users for its services. The churn rate for Q4 was likely low as well, as we expect that the company added net new subscribers.

Broadband Internet Grows As Adoption Improves

Broadband Internet is the third largest division and contributes over 23% to Comcast’s value, according to Trefis estimates. During the first three quarters of 2016, Broadband Internet revenue grew by 8.4% to $10 billion. Additionally, the company added 988,000 net new users for its internet services. Increases in the number of residential customers receiving high-speed Internet service accounted for increases in revenue of 6.0% for the nine months ended September 30th. We estimate that the company’s subscriber base is now approaching 25 million.

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