A Closer Look At Comcast’s Q3 and Beyond

Comcast (NASDAQ: CMCSA) reported solid third quarter results on October 25, as both its earnings per share and revenues came ahead of market expectations. The company’s consolidated revenues grew 5% year-over-year (y-o-y) to $22.1 billion and its adjusted EBITDA grew 2.5% y-o-y, reflecting solid growth at Cable Communication and NBCUniversal. The company benefited from continuing gains in broadband revenues, which offset declines in video revenues as residential subscribers continued cutting cords. On the other hand, NBCUniversal saw strong results in television (broadcast and cable) amid higher distribution, advertising, and licensing revenues. However, Theme Parks remained a drag in the quarter as a result of severe weather and natural disasters in Japan. In addition, cost cuts helped the company post adjusted EPS growth of 27% y-o-y to $0.65. Going forward, we expect the company to benefit from this positive momentum and post improved growth in sales and earnings in Q4 – driven by its streaming products and X1 services, cost-saving measures, and lower effective tax rate.

Comcast’s stock is down over 10% year-to-date, due to weakness in its pay-TV business as a result of cord cutting. Our $42 price estimate for Comcast’s stock is around 10% ahead of the current market price. We have created an interactive dashboard on What To Expect From Comcast’s Q4, which outlines our forecasts for the company’s Q4 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.

Expected Trends In Q4

We forecast Comcast to report a minor loss in cable TV subscribers due to expected competition and cord cutting measures in Q4. 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 Q4. We expect Theme Parks to boost the company’s revenues in Q4, driven by the continued increase in guest spending and higher guest attendance in U.S. 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

We expect the company to benefit from its streaming and broadband services for full-year 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 $11 billion. Of the total expected revenues in 2018, we forecast $55 billion for the Cable TV business and nearly $33 billion for NBCUniversal.

Comcast’s Cable TV business provides video, high-speed internet, voice, and security and automation services to residential customers under the Xfinity brand. We estimate an average count of 22.3 million video subscribers in the U.S. with an average monthly fee of $86, translating into $23 billion in video revenues for 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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