Solid Comcast Earnings Indicate Cable Handles Telcos
Cable operator reaffirms guidance that 2008 will end with consolidated revenue and operating cash flow growth of 8%-10%, consolidated free cash flow up at least 20%.
By Robert Marich -- Broadcasting & Cable, 7/30/2008 6:55:00 AM
Comcast reported an 8% rise in second-quarter earnings and its cable-TV-subscriber count slid 0.6%, or 138,000 households, to 24.6 million.
Stock analysts called the earnings and only modest subscriber-count decline very good, given the fact that the second quarter is traditionally weak and cable-TV operators face increased competition from telco video.
Comcast earnings were mostly upbeat, with consolidated revenue advancing 11% to $8.553 billion in the quarter ended June 30. Earnings were $632 million, or 21 cents per share, compared with $588 million (19 cents) in the year-ago period.
Free cash flow -- which excludes noncash accounting items -- soared 216% to $1.16 billion from $368 million.
In key cable-TV metrics, Comcast added 320,000 digital-cable subscribers that now account for 67% of its total, meaning 16.3 million video subscribers take its digital service. Seven million, or 43% of its base, have advanced services, such as digital-video recorders.
Looking forward, Comcast reaffirmed its guidance that 2008 will end with consolidated revenue and operating cash flow growth of 8%-10% and consolidated free cash flow up at least 20% from $2.3 billion in 2007. Further, capital expenditure expenses will decline about 18%.
Analysts were mostly upbeat because, despite isolated pockets of weakness, Comcast's earnings indicated that it is beating back rival video services from Verizon Communications and AT&T, which reported disappointing TV-subscriber growth.
“As it turns out, the telcos’ loss has been Comcast’s gain,” said a note to investors from Sanford C. Bernstein. “Cable is taking share, and it is taking it in gulps.”
Other stock analysts were more restrained on broader implications but were still impressed. “All Things Considered, A Decent Quarter,” said the headline on a note from Morgan Stanley. Merrill Lynch reiterated its buy recommendation on Comcast stock.
The weak spots included per-share earnings slightly below some analysts' forecasts and a 2% decline in second-quarter ad revenue of $399 million, which Comcast blamed on the soft economy and weak automotive and real estate ad categories.
Comcast said political advertising figures to boost advertising in the second half of the year. A 3% rise in video-segment revenue -- meaning cable TV -- was just so-so.
Looking at a closely watched metric, average revenue per cable subscriber rose 9% over one year to $110 in the second quarter for customers taking TV, broadband and voice. In the same quarter one year ago, it was $101, and it was $91 in 2006.
Comcast brass impressed investors in a conference call Wednesday by insisting that they’ll keep a lid on capital expenditures -- investment in infrastructure that never seems to level off in the cable industry -- while spending more on consumer marketing and customer service.
The cabler said it sees a big opportunity in the turnoff of analog over-the-air broadcasting next February. It estimated that 6 million-8 million households in its footprint use over-the-air broadcasting for TV service and 20%-30% of these won’t be able to get digital-broadcasting signals to work on their TV sets for an assortment of reasons.
So Comcast is preparing marketing to convince these nonsubscribers to plug into cable, instead of satellite TV or telco video, which will also woo them. It expects 1 million-2 million of these nonsubscribing over-the-air households to ultimately become subscription-TV customers to either cable, satellite or telco video as a result of the analog-broadcasting shutoff.
