Comcast Has “Good, Not Great” Q3


Comcast kicked off the cable earnings season Wednesday morning with strong third-quarter results, reflecting that at least the early innings of the global recession did not seriously harm the country’s largest cable operator.

Revenue and operating cash flow rose a healthy 10% in the period ended Sept. 30, to $8.5 billion and $3.2 billion, respectively. And though basic subscriber losses – at 147,000 for the period – were well above some analysts estimates (which ranged from 26,000 to 85,000), the MSO did manage to report strong growth in digital (417,000), high-speed Internet (382,000) and telephony (483,000) additions.

The results come a day after Comcast shares soared nearly 25% ($3.34 per share) to $16.96 on Tuesday, riding a nearly 900-point surge n the Dow Jones Industrial Average and anticipation of strong third quarter earnings.

While the MSO’s results were good, they weren’t good enough to discourage an early sell-off of shares. Comcast stock was down 9.7% ($1.65 cents per share) to $15.32 each in early morning trading Wednesday. And the results seemed to set the tone for the rest of the industry. Cable shares, which enjoyed robust run-up on Tuesday,  gave back some of those gains in early Wednesday trading, with Time Warner Cable shedding $1.06 cents each (5.5%) to $18.02, Charter Communications remaining unchanged at 40 cents each, Cablevision Systems dipping 5 cents (0.3%) to $15.44 each, and Mediacom Communications losing 3 cents each (1%) to $3.41 per share.  

“After an explosive rally yesterday, today's good-not-great results are unlikely to be enough to fully satisfy. But valuations remain compelling on both an absolute and relative basis,” Sanford Bernstein cable and satellite analyst Craig Moffett said in a research note. Moffett estimated that even with the 25% bump in the stock price Tuesday, Comcast is still trading at an abnormally low multiple – about 4.9 times 2009 estimated cash flow.

On a conference call with analysts, Comcast chairman and CEO Brian Roberts said that despite the challenging economy, Comcast has been gearing up for a downturn for about a year and is well positioned to weather an economic malaise.

“Is cable a good business? Is Comcast ready? I think absolutely yes,” Roberts said on the call.

Comcast chief operating officer Steve Burke said that despite declines in capital expenditures – capex was down 16% in the quarter – the MSO is continuing with plans to convert all of its systems to digital technology and to rollout super high-speed Internet service via DOCSIS 3.0.

Burke also downplayed the basic subscriber losses, adding that they were mostly single play customers. And he said that most of the decline is due to the sluggish housing market not churn.

“What we have seen – and this has been going on for awhile and has been accelerating recently – is that our connects are lower than they were last year; interestingly, our disconnects are not rising,” Burke said on the call. “It’s not that people who have our services are leaving, it’s that there is less propensity to upgrade, less propensity to move and take our services when someone moves into town.”