Comcast Earnings In-Line, But Sub Growth Is Soft

Basic Subscribers Flat, but Triple-Play Services See Increases
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Comcast reported third-quarter earnings of $0.18 per share, which was in line with consensus Wall Street estimates, but subscriber growth was softer than expected.

The nation’s largest cable operator saw revenue for the quarter rise 21% to $7.78 billion from $6.4 billion. Operating cash flow was up 20% to $2.9 billion while operating income was up 14% to $1.4 billion. The company’s net income slid 54% to $560 million from $1.2 billion.

“We once again posted double-digit growth in revenue and operating cash flow, our two most important metrics,” Comcast Chairman/CEO Brian Roberts said in a statement. "Our business continues to perform well both operationally and financially.”


But soft subscriber metrics concerned investors, and cable stocks suffered as a result. Comcast saw a 65,000 decrease in basic cable subscribers in Q3 while net digital subscriber additions slowed to 489,000 from 559,000 in the same quarter a year ago. Slower growth was also recorded in broadband net additions, to 450,000 versus 536,000.

The company’s cable segment added 1.4 million revenue-generating units (RGUs) in the third quarter to bring the total number of RGUs to 55.8 million, 13% higher than Q3 2006. Comcast said it is adding RGUs at a greater rate in 2007 than in 2006 as the 4.8 million adds year-to-date represent a 40% increase over the same period a year ago. But Q3's 1.4 million was off from the 1.5 million added in the comparable 2006 period.


“Investors may be tempted to blame escalating competition, but the macro-economy likely is a more important factor in today's results,” says Sanford Bernstein analyst Craig Moffett, “TelCo video competition – despite inordinate investor attention – is available to just 4% of Comcast's footprint, and remains too small to be a significant factor. With 40% of the U.S. covered by Comcast's massive footprint, the company is simply too large to run away from the macro-economy.”

In the programming segment -- which includes network assets such as E! Entertainment Television, The Golf Channel and Versus -- revenue rose 27% in Q3 to $330 million.

The company also announced a $7 billion addition to its share-repurchase program, bringing the total authorized amount under the program to $8.2 billion. Comcast repurchased $600 million in the quarter and $1.85 billion year-to-date.


Cable stocks sank with the broader market Thursday in the wake of industry leader Comcast’s release with Comcast trading through its 52-week low to close down over 10% at $21.28; Time Warner Cable trading through its 52-week low to close down over 8% at $29.40; Charter sliding over 22% (or $0.58) to $1.97; Cablevision dropping over 4.50% to $29.40 and Mediacom trading down 6.25% to $5.70.

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