Can Comcast Begin Fiscal 2019 On A Strong Note?

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Comcast (NASDAQ: CMCSA) reported solid fourth quarter results on January 23, as both its earnings per share and revenues came in ahead of market expectations. The company’s consolidated revenues grew 5% year-over-year (y-o-y) and its adjusted EBITDA grew 11% y-o-y on a pro forma basis, reflecting solid growth at Cable Communication and NBCUniversal in Q4. 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. In addition, cost cuts helped the company post adjusted EPS growth of 36% y-o-y to $0.64. Going forward, we expect the company to benefit from this positive momentum and post improved growth in sales and earnings in Q1 – driven by its streaming products and X1 services and cost-saving measures.

Comcast’s management also offered details on its streaming video service that the company expects to launch in the first half of 2020. The service is expected to include current and past seasons of shows seen on NBCU networks as well as some original content.

Comcast’s stock was down over 15% over the course of 2018, largely due to weakness in its pay-TV business as a result of cord cutting. Our $42 price estimate for Comcast’s stock is around 15% ahead of the current market price. We have created an interactive dashboard on What To Expect From Comcast’s Q1, which outlines our forecasts for the company’s Q1 and full-year fiscal 2019 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

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Expected Trends In Q1

We forecast Comcast to report a minor loss in cable TV subscribers due to expected competition and cord cutting measures in Q1. 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 Q1. We expect Theme Parks to boost the company’s revenues in Q1, driven by the continued increase in guest spending and higher guest attendance in the U.S.

FY 2019 Outlook

In 2019, Comcast’s Filmed Entertainment segment boasts of a strong slate which includes the third installment of the How to Train Your Dragon franchise and the return of the Fast and Furious franchise. The Theme Parks segment has some attractions opening, with Jurassic World in Hollywood and a Harry Potter Coaster in Orlando. Overall, we expect Comcast’s theme parks to be an important driver for its long-term growth due to its international expansion as well. The company plans to partner with Nintendo at Universal Studios Japan and open a new large park in Beijing by 2020.

We expect the company to benefit from its streaming and broadband services for full-year 2019, and we expect the company to grow at a similar pace as 2018 going forward. We expect Comcast to generate around $95 billion in revenues in 2019. Of the total expected revenues in 2019, we forecast $57 billion for the Cable TV business and nearly $38 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 21 million video subscribers in the U.S. with an average monthly fee of $85, translating into $21.4 billion in video revenues for fiscal 2019. Comcast’s video subscribers and voice subscribers have been declining modestly over the last three years due to stiff competition in 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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