Comcast Earnings: Subscriber Growth, Contract Renewals Drive Revenue Growth

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Comcast (NASDAQ:CMCSA) released its Q1 results on April 27th, reporting that consolidated revenue grew by 8.9% year-on-year to $20.46 billion. [1] Operating income grew by 10.6% to $4.53 billion, while adjusted EBITDA grew 10.4% to $7 billion. The company reported that it added over 42,000 video TV subscribers for its cable TV business during Q1. 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 as more users enrolled in its video services.

NBCUniversal, which has been an important growth driver for the company in the recent quarters, once again contributed to revenue growth in Q1 as revenues grew by 14.7% to $7.86 billion. NBCUniversal’s numbers were boosted by the integration of DreamWorks and the success of its theatrical releases, Fifty Shades Darker, Get Out and Split, in the first quarter. NBCUniversal’s cable network and broadcasting TV business also posted mid-single digit growth due to contract renewals and improvement in contractual rates.

See our complete analysis for Comcast

NBCUniversal’s Growth Boosted By Improvement In Contractual Rates And Contract Renewals

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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. NBCUniversal accounts for over 40% of our price estimate for Comcast’s stock.

During Q1, 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 14.7% to $7.87 billion, driven by the integration of DreamWorks and improvement in its cable network and broadcast television revenues.

The Cable Networks vertical reported that revenue grew by 7.6% during the quarter, as increases in the contractual rates charged under distribution agreements and contract renewals boosted revenues. Furthermore, content licensing and other revenue increased 54.0% due to a new licensing agreement, as well as the timing of content provided under current licensing agreements. However, advertising revenue declined by 2.9% due to decline in audience ratings that adversely impacted monetization. Furthermore, a decline in the number of subscribers at its cable networks continued to impact revenue growth in Q1.

The Broadcasting TV division reported 5.9% growth in revenues to $2.2 billion. We anticipated that ad revenue growth will remain anemic, and the company reported that its ad revenues grew by 0.3%, driven by higher rates, offset by ratings declines and lower volumes. Furthermore, content licensing revenue grew by 2.6%, primarily due to the timing of content provided under licensing agreements, and distribution and other revenue increased 33%, due to higher retransmission consent fees.

The film entertainment division reported 43% growth in revenues to $1.98 billion. The growth in Theatrical revenues, which increased by $415 million to $651 million, reflected the strong performances of Fifty Shades Darker, Get Out and Split, as well as the continued success of Sing in the first quarter. Furthermore, assimilation of DreamWorks resulted in the growth of other revenue and content licensing revenue, which grew by 35.9% and 12.1%, respectively. Going forward, we expect new movie releases from both Universal, and DreamWorks will help the company to post growth in revenues.

The theme park segment reported a 9% increase in revenues to $1.1 billion, primarily due to increases in guest spending and higher guest attendance. We expect this trend to continue in Q2 and the company to report growth in revenue in the ensuing quarters.

Pay-TV Subscriber Growth Continues Unabated

For Q1, Comcast reported that its cable TV revenue grew by 4.3% to $5.74 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 subscriber churn rate was less than expected as a result of its continued deployment of the digital X1 platform and cross sales of double and triple play bundle packages. The company reported a net addition of 42,000 new video cable users for its services. We expect this trend to continue through the remainder of 2017.

High-Speed Internet Subscriber Growth Again

The need for higher speed connectivity is driving demand for broadband internet, and it has remained the leading growth factor for cable companies for quite some time now. This trend drove the revenues and subscriber numbers at Comcast’s High-Speed Internet business as revenues grew 10% y-o-y to $3.6 billion and its subscriber base grew by 429,000 to 25.13 million. [2] We expect this trend of growth to continue.

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Notes:
  1. COMCAST REPORTS Ist QUARTER RESULTS, April 27 2017, Comcast Investor News []
  2. Comcast’s Investor Release []