Comcast Earnings: Growth In NBCUniversal, High-Speed Internet And Cable TV Continues To Boost Revenues

Comcast (NASDAQ:CMCSA) released its Q4 results on January 26th, reporting that consolidated revenue grew by 9.2% to $21.02 billion. ^[1] Operating income grew by 6.6%, while operating cash flow grew 7.8%.  For the full year 2016, consolidated revenue increased 7.9% to $80.40 billion, operating income increased 5.4% to $16.85 billion and operating cash flow increased by 7.0% to $26.41 billion. The company reported that it added over 161,000 video TV subscribers for its cable TV system, the highest in the last decade. We believe that Comcast’s double- and triple-play bundling and the rollout of its X1 platform have helped the company to improve its pay-TV subscriber rate. NBCUniversal, which has been an important growth driver for the company in the recent quarters, once again contributed to revenue growth in Q4 and 2016. NBCUniversal’s numbers were boosted by the assimilation of DreamWorks and the success of its theatrical release, Sing, in this year’s fourth quarter. Furthermore, Comcast added 1.373 million high-speed internet subscribers during the year.

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NBCUniversal’s Growth Boosted By Acquisition And Improvement In Adverting Rates

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. The NBCUniversal accounts for over 27% of our price estimate for Comcast’s stock.

During Q4, 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 13% to $8.45 billion, driven by the acquisition of DreamWorks.

The Cable Networks vertical reported that revenue grew by 4% during the quarter, as increases in the contractual rates charged under distribution agreements and contract renewals boosted revenues. The advertising revenue grew marginally by 0.6% due to higher ad rates. Furthermore, a decline in the number of subscribers at its cable networks continued to impact revenue growth in Q4.

The Broadcasting TV division reported 14% growth in revenues to $2.8 billion. While we were expecting anemic growth in ad revenues, they grew by 12.4%, driven by the premiere of Thursday Night Football, higher rates, and higher political advertising. Furthermore, content licensing revenue grew by 20.2%, primarily due to the timing of content provided under licensing agreements, and distribution and other revenue increased 14.1%, due to higher retransmission consent fees. For Q1 2017, we anticipate higher ad revenues as scheduled big ticket events such as the Superbowl will be aired in the quarter.

The film entertainment division reported 12.6% growth in revenues to $2.8 billion. The primary reason for the growth in revenue was the assimilation of DreamWorks with the business unit. Home entertainment revenue declined 36.0%, reflecting the success of several releases in the prior year period, including Jurassic World, Minions and Trainwreck,. In turn, Theatrical revenue increased 96.7%, primarily due to the strong performance of Sing in this year’s fourth quarter. Going forward, we expect new movie releases from both Universal, and DreamWorks will help the company to post growth in revenues.

Theme park segment reported a 32.1% growth in revenues to $1.3 billion, primarily due to increases in guest spending and higher guest attendance, driven by the successful opening of The Wizarding World of Harry Potter™ attraction in Hollywood in April 2016, as well as the positive impact of foreign currency translation due to the strengthening of the Japanese yen. We expect this trend to continue in Q4 and the company to report growth in revenue in Q1 and 2017.

Pay-TV Subscriber Growth Continues Unabated

Comcast offers a pay-TV service via its cable infrastructure for regular programming packages, HD/DVR services, video-on-demand services, and Xfinity Streampix. Comcast has successfully migrated its subscribers on a digital platform from the analog platform. This division makes up over 27.3% of Comcast’s estimated stock value.

For Q4, the company reported that its cable TV revenue grew by 4.3% to $5.65 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 the churn rate (the annual percentage rate at which customers stop subscribing to cable TV servic) was less than expected as a result of its continued deployment of the digital X1 platform and cross sales of double and triple bundle packages. The company reported a net addition of 80,000 new video cable users for its services. We expect that this trend to continue in 2017.

High-Speed Internet Subscriber Report Growth Once Again

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 the need for higher speed connectivity. Comcast’s High-Speed Internet business has been reporting growth over the past few years. As a result, Broadband Internet is the third largest division and contributes over 23% to Comcast’s value, according to Trefis estimates.

Subscriber growth continued in the fourth quarter and the company added 385,000 new subscribers, bringing its high-speed internet subscriber base to 24.71 million by the end of 2016. ^[2] The high-speed internet business generated revenues of $3.48 billion (9% growth) and $13.53 billion (8.5% growth) during the quarter and the year respectively. 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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1. COMCAST REPORTS 4TH QUARTER AND YEAR END 2016 RESULTS, January 26 2017, Comcast Investor News [↩]
2. Comcast’s Investor Release [↩]