Cable Operators

Comcast Roars In 1Q

4/28/2006 8:06 PM Eastern

Given the optimism expressed by its chairman and CEO, Brian Roberts, at the National Show in early April, Comcast Corp. was under pressure to report stellar results for its first fiscal quarter.

Last Thursday, Comcast delivered in spades, reporting that basic subscribers rose by 47,000 (its best first quarter since 2003); digital customers rose by 340,000 customers (its best first quarter in its history), high-speed Internet subscribers increased by 437,000 (its best first quarter on record) and digital telephony customers were up by 211,000 in the three months (more than it added in all of 2005).

Picking Up the Pace
Comcast is gaining subscribers — and the stock is starting to come back.
1Q05 2Q05 3Q05 4Q05 1Q06
Basic Subscriber Growth (Loss) (29,000) (77,000) (46,000) 40,000 47,000
Digital Telephone Subscriber Growth (Loss) 7,000 15,000 46,000 134,000 211,000
Stock Price $31.48 $30.23 $26.80 $27.00 $30.44
Note: Stock Prices are as of the date of the quarterly earnings release: April 28, 2005; Aug. 2, 2005; Nov. 3, 2005; Feb. 2, 2005 and April 27, 2006.
Source: Company reports; Nasdaq Web site.

The performance drove its stock up nearly 5%, nearing $31 a share at one point. The results lifted stocks throughout the cable industry, in hopes that Comcast’s success is a preview of things to come.

“Let me be corny and say this was a 'Comcastic’ quarter,” Roberts during a conference call with analysts to discuss quarterly results on April 27. The comment played off the slogan of the cable operator’s latest advertising campaign.

During one panel session at the National Show, Roberts had said he felt strongly that the business is poised to enjoy sustainable double-digit growth across all metrics. That prompted at least one analyst — UBS cable and satellite analyst Aryeh Bourkoff — to increase his basic subscriber target from 5,000 to 45,000 additions in the period.

Those subscriber numbers also translated into strong financial growth — revenue for the quarter was up 10%, to $5.9 billion; and operating cash flow increased 11%, to $2.2 billion. That made it 23 consecutive quarters of double-digit revenue and operating cash-flow growth for Comcast.

Banc of America Securities cable and satellite analyst Doug Shapiro subsequently wrote in a research report that the across-the-board growth signals that cable is outpacing satellite and other competition, in pulling in television, phone and Internet business.

“We viewed today’s results as a turning point, because we think they illustrate that Comcast, and the cable industry generally, has a material speed-to-market advantage,” Shapiro wrote. “While we think secular threats are legitimate, we also think they are years away from materializing and it is increasingly evident that cable is putting up numbers today.”

Comcast stock soared on the results, reaching as high as $30.92 per share (up $1.82 each or 6.3%) in early trading April 27, before closing at $30.44 per share (up $1.35 each, or 4.6%). The rest of the publicly traded cable operators also saw their stocks climb — Time Warner Inc. shares rose 47 cents each (2.8%) to $17.36; Cablevision Systems Corp. gained 85 cents (4.5%) to close at $19.79; Charter Communications Inc. rose 3 cents each (2.6%) to $1.18 and Mediacom Communications Corp. rose 23 cents (3.5%) to $6.90 per share.

In the conference call, Comcast chief operating officer Steve Burke said that the basic-subscriber growth was a continuation of a trend that started in the fourth quarter (when Comcast added 40,000 basic customers) and that all signs point to more growth.

Burke said it was too early to tell the impact of Comcast’s voice-over-Internet Protocol telephony service — dubbed Comcast Digital Voice — on basic subscriber growth. But he said the company is signing on an average of 15,000 new phone customers per week, with some weeks topping 20,000 additions. VoIP service is currently available to 20 million homes and that should increase to 30 million by year-end.

Burke said that in markets where Comcast is aggressively marketing its $99-per-month triple play package — Boston, Philadelphia, Indianapolis and Pittsburgh — the results are even better. Burke said that average revenue per unit with those promotional customers is ranging between $120 and $130 per month, as they take more expensive digital and premium channel tiers.

Comcast also is gaining ground on digital subscriber line services offered by the telephone companies. Burke said that 34% of Comcast’s net high-speed Internet additions in the quarter were former DSL customers, up from 23% in the same period in 2005.

“We now get as many customers from DSL as we do from AOL narrowband,” Burke said.

September