Comcast Delivers Mixed Results In Q2

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Comcast continued to earn its stripes as a free cash flow engine in the second quarter, but high-speed data additions came in at an unusually low rate in the period, as the economy and poor marketing choices forced a higher number of voluntary disconnects.

Free cash flow for the period was a healthy $1.2 billion, about even with the same period last year. For the first six months of the year, free cash flow was up 36% to $2.5 billion. Revenue and cash flow growth, at 4.5% and 5.5%, respectively, were also in line with analysts' expectations.

Comcast subscriber metrics for the most part were in line with analysts' already low expectations -- the nation's largest MSO lost about 214,000 basic video customers, added 233,000 voice customers and boosted digital subscribers by 250,000 customers. But high-speed Internet service, a consistent growth engine for the company for years, showed signs of a slowdown as the company only added 65,000 customers in the period.

In the first quarter, Comcast added about 320,000 high-speed Internet customers.

Comcast chairman and CEO Brian Roberts said on a conference call with analysts Thursday that the high-speed data additions were "disappointing."

"We understand what happened and we have made the necessary corrections," Roberts said on the call. "This does not represent a new trend."

Chief operating officer Steve Burke said that while the economy played a role in the declines -- the company said that several areas within its footpring with high unemployment rates were hit hardest -- so did its marketing message. Burke said that most of the marketing efforts in the second quarter were centered on the federally mandated digital transition. That has changed and now the message is more targeted to specific products and the triple play. Already, Burke said, Comcast has added more high-speed data customers in July than in the entire second quarter. And the rest of the third quarter is expected to be better as students go back to school.

On the conference call Burke noted that "300,000 [additions] to 65,000 [additions] is a big drop. But the good news is that once we made the adjustments and [targeted] more single and triple play promotions, we've seen the business pick up significantly. The third quarter is going to look a lot more like the first quarter."

Burke added that Comcast is moving forward with its all-digital initiative -- about 10% of its systems have made the conversion and the company expects to end the year with about one-third of its systems all digital. The company's joint venture with Clearwire for a Wi-Max wireless data product -- dubbed Comcast 2Go -- has been launched in Portland, Ore., and is expected to expand to other areas in the future.

Burke said that the margins on the product are significant -- about 40% once the 12-month promotional period expires -- and is attracting new customers. He estimated hat about 40% of Comcast 2Go subscribers in Portland are new to Comcast.

As far as its other technology initiative -- the Canoe interactive advertising venture -- Burke offered little new news. Although he said that substantial progress is being made -- he said the focus currently is on the rollout of the Enhanced Binary Interchange Format standard -- and some revenue is expected in 2010, more material revenue will come in 2011.

Comcast shares were up 45 cents each (3%) to $15.51 per share in early trading Thursday.