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The cable TV business is fading -- but broadband is more profitable.
(Bloomberg Photo)
Comcast Corp. awaiting regulatory approval to buy Time Warner Cable, reported profit that beat estimates as new high-speed Internet customers more than made up for declining video subscribers.
Cable operators like Comcast are relying more on broadband users for revenue growth as new TV subscribers are harder to come by. More content is being offered via online services like Netflix Inc. and HBO's upcoming online subscription, encouraging cable customers to cut the cord. The increasing reliance on broadband sign-ups is helping boost profit margins, according to David Heger, an analyst at Edward Jones & Co.
"From the point of view of a cable company, you really want to see broadband growth more so than cable-TV growth because it's much more profitable," Heger, who has a buy rating on the stock, said in an interview before the earnings release. "For a Comcast, it's really broadband and a bigger push into the business market" that are fueling growth, he said.
Internet Customers
Comcast has 600,000 subscribers in Oregon and Southwest Washington. It's facing growing competition in the Portland area from CenturyLink's expanded fiber-optic residential service and the prospect of Google Fiber entering the market next year.
Third-quarter earnings were 73 cents a share, excluding tax adjustments and acquisition-related expenses, Comcast said today in a statement. That topped the 71 cents that analysts projected on average, according to estimates compiled by Bloomberg.
Comcast shares rose 3.4 percent to $53.22 at the close in New York, the biggest one-day gain since January.
The Philadelphia-based company signed up 315,000 new broadband customers in the quarter. That was better than the 288,000 and 300,000 additions estimated by Matthew Harrigan, an analyst at Wunderlich Securities, and Todd Mitchell, an analyst at Brean Capital, respectively. TV subscribers fell by 81,000, better than the drop of 127,000 a year ago.
"It was a very good quarter, particular strength in improving video numbers, broadband and NBC broadcast network," Harrigan said in a phone interview.
A customer's average monthly bill rose to $137.24 a month. More than a third of Comcast's customers subscribe to all three services: Internet, voice and video.
Sales at Comcast's NBCUniversal group rose 1.2 percent to $5.92 billion, driven by higher revenue from the theme parks with new Harry Potter attractions, as well as from the NBC broadcast and cable networks.
Comcast's proposed $45.2 billion takeover of Time Warner Cable, the second-largest U.S. cable-TV company, is at risk of taking longer to complete as regulators resolve disputes over programming contracts. The Federal Communications Commission yesterday stopped the clock in its review and suspended deadlines for comments in this deal, as well as AT&T Inc.'s agreement to purchase DirecTV.
Deal Uncertainty
"The merger has strong odds of approval, although negative headlines will likely persist for a while and concessions might be more costly than some initially hoped," Jonathan Chaplin, an analyst at New Street Research, said today in a note to clients.
Comcast said today it still expects the takeover to be completed in early 2015.
Through yesterday, Comcast shares had fallen 6.8 percent since the Time Warner Cable purchase was announced in February. The Standard & Poor's 500 Index has increased 5.9 percent during the same period.
"Since the deal was announced, it's been a cloud of uncertainty," Heger said. "It's been a big factor on why the shares have been underperformers this year."
Cord Cutting
For Comcast, the merger is, in part, being motivated by the falling number of Americans paying for TV. That's left companies focused on retaining customers instead of chasing new ones.
Comcast is also facing skeptical consumers who routinely rate it among the worst for customer service in the U.S. Earlier this month, a former employee of PricewaterhouseCoopers LLP sued Comcast and claimed the company ruined his professional career. The cable operator had previously apologized publicly, while denying that any of its employees asked that he be fired.
Third-quarter net income rose to $2.59 billion, or 99 cents a share, from $1.73 billion, or 65 cents, a year earlier. Revenue rose 4 percent to $16.79 billion, just shy of the $16.81 billion estimated by analysts.
The film division, which includes the Universal Pictures studio, generated $1.19 billion in sales, a 15 percent drop from a year ago when the studio released the sequel in the lucrative "Despicable Me" franchise.
-- Bloomberg News