How A Weak Broadband Business Will Impact Comcast’s Q3 Results

CMCSA: Comcast logo

Comcast (NASDAQ:CMCSA)  is poised to report its Q3 2022 results on October 27. We expect Comcast’s earnings to come in at about $0.91 per share, slightly ahead of consensus estimates and up about 5% compared to last year. We project that revenue will stand at about $29.7 billion, roughly in line with consensus estimates. So what are some of the key trends that are likely to drive the company’s earnings? See our interactive dashboard analysis on Comcast Earnings Preview for more details on how Comcast’s revenues and earnings are likely to trend for the quarter.

We expect the company’s bread-and-butter broadband Internet business to continue to witness a slowdown versus last year. Over Q2 2022, Comcast’s broadband user base remained flat at 32.2 million, marking the first time ever that the company failed to add subscribers over a quarter. There have been a couple of trends impacting the broadband business. Firstly, the boom witnessed through the Covid-19 pandemic and the work-from-home trend has cooled off. Moreover, competition for fixed-wireless broadband services from wireless carriers has been mounting. For example, T-Mobile topped the broadband industry, adding 560,000 subscribers over the most recent quarter. Although we don’t expect this trend to continue in the long run, given that wireless capacity is more limited compared to Comcast’s wireline broadband, it could impact Comcast’s performance in the near term.

Comcast’s cable TV business is also likely to bleed subscribers, as the secular trend of cord-cutting continues. The company lost 497,000 residential video customers in Q2, taking total losses in the first half of 2022 to 982,000. However, Comcast’s fledgling wireless services operations – which operate on the Verizon network – are likely to remain a bright spot for the company. Over Q2 Comcast added about 317,000 wireless lines, with the company indicating that wireless penetration of residential broadband customers rose to 7.9%, indicating that the strategy of cross-selling is working.

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We think Comcast stock remains undervalued. At the current market price of roughly $30 per share, Comcast trades at just about 8x consensus 2022 earnings. Although there are near-term headwinds for the stock, Comcast is likely to expand its earnings per share driven by share repurchases and margin expansion for the cable communication business via cost and efficiency improvements.  Moreover, the company’s sizable and stable cashflows could make it a safe haven of sorts in a recessionary environment.  We value Comcast stock at about $50 per share, which is well ahead of the current market price. See our analysis of Comcast Valuation for a closer look at what’s driving our price estimate for the company and how Comcast compares with its peers. Also, see our analysis of Comcast Revenue for more details on the company’s key revenue streams and how they have been trending.

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Returns Oct 2022
MTD [1]
YTD [1]
Total [2]
 CMCSA Return 5% -39% -55%
 S&P 500 Return 3% -23% 64%
 Trefis Multi-Strategy Portfolio 2% -25% 196%

[1] Month-to-date and year-to-date as of 10/18/2022
[2] Cumulative total returns since the end of 2016

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