What To Expect From Comcast’s Q2 and Fiscal 2018

Comcast (NASDAQ: CMCSA) is scheduled to announce its fiscal second quarter results on Thursday, July 26. In Q1, Comcast’s consolidated revenues grew 11% year-over-year (y-o-y) to $22.8 billion and its adjusted EBITDA  grew 3% y-o-y. The company benefited from continuing gains in broadband customers, which offset cable TV declines. In addition, cost cuts helped the company post adjusted EPS growth of 17% y-o-y to $0.62. Going forward, we expect the company to benefit from this positive momentum and post improved growth in sales and earnings in Q2 – driven by its streaming products and X1 services, cost-saving measures, and lower effective tax rate.

Comcast’s stock is down more than 20% year-to-date, due to weakness in its pay-TV business as a result of cord cutting. Our $37 price estimate for Comcast’s stock is around 10% ahead of the current market price. We have created an Interactive Dashboard for Comcast which outlines our forecasts for the company’s Q2 and full-year fiscal 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Comcast’s Dramatic Q2 2018

Disney won the original bidding for the majority of Fox’s assets last December, with a $52.4B all-stock deal. However, Comcast challenged this deal and came in with a superior $65 billion all-cash bid after the approval of the AT&T-Time Warner deal. In response to Comcast’s bid, Disney sweetened its bid for the assets of Fox to $71.3 billion in cash and stock ($38 per share in cash and stock), which led to Fox accepting this offer. Disney further got an edge over Comcast after it got U.S. DoJ approval for Fox’s assets, which led to Comcast dropping out from the bidding eventually. However, the company continues to fight for a 61% share of European satellite-TV provider Sky, which Fox has been trying to buy for nearly 18 months. Fox already owns the remaining 39% of Sky. Comcast sees Sky as a vital platform for furthering its content and OTT strategies in international growth markets, as it is witnessing cable subscription declines in the domestic market. As a result, Comcast recently formalized a £26bn offer to buy Sky, exceeding Fox’s £24.5bn offer. Under U.K. takeover rules, Fox has to submit a new bid for Sky by August 8 to stay in the running.

Expected Trends In Q2

We expect Comcast to report a minor loss in cable TV subscribers due to competition and cord cutting measures in Q2. While cord cutting is likely to weigh on its revenues, the popularity of Xfinity Double and Triple Play bundling should continue to largely offset these declines. Accordingly, we expect the subscriber losses to have a fairly limited impact on the company’s top line going forward. In addition, Comcast is also aggressively pursuing over-the-top (OTT) streaming services, with the launch of Xfinity Stream and the recently rolled out Xfinity Instant TV across markets that the company already serves. Although the company currently does not provide the breakdown for its OTT service, we believe that the streaming service will be instrumental in retaining and attracting consumers for Comcast’s cable offerings.

NBCUniversal’s cable network and broadcasting revenues are likely to improve as the increases in contractual rates could increase revenues in Q2. Theme park revenues have grown in the first quarter due to increases in guest spending and higher guest attendance. We expect these trends to continue in Q2 and boost revenues during the quarter. Comcast has been increasing its investments in this business as it plans to open new attractions each year in the U.S. to boost its share in the growing market. Additionally, it has planned a $3.3 billion investment to build a theme park in Beijing by 2020.

FY 2018 Outlook

In 2018, we expect the company to benefit from its streaming services and broadband services in 2018, and we expect the company to grow at a similar pace as that of 2017 going forward. We expect Comcast to generate around $87 billion in revenues in 2018, and earnings of over $12 billion. Of the total expected revenues in 2018, we estimate $54 billion in the Cable TV business and nearly $34 billion in the NBC Universal business.

Comcast’s Cable TV business provides video, high-speed internet, voice, and security and automation services to residential customers under the Xfinity brand. We have estimated 22.3 million video subscribers in the U.S. with an average monthly fee of $86, translating into $23 billion in video revenues in fiscal 2018. Comcast’s video subscribers and voice subscribers have been declining modestly over the last two years due to stiff competition in the live streaming media and telecom alternatives, respectively. We expect this trend to continue in the near term as well. However, we expect Comcast’s high-speed internet customers to grow going forward, as the company could benefit from initiatives such as Xfinity Mobile, a wireless service through 16 million WiFi hot-spots.

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