Comcast Sub Losses Weaken Strong 2Q


Comcast Corp. reported strong revenue and cash-flow growth in the second quarter, but basic subscribers were down by 96,000 largely due to seasonality.

The largest MSO in the country also revised its basic-subscriber growth for the full year, stating that it now expects to end 2004 with about 21.5 million subscribers, essentially the same as in 2003. Comcast had previously expected to grow basic subscribers 0.5%, or about 100,000.

While the second quarter is traditionally a weak one as college students return home and snowbirds leave for their summer residences, the basic-subscriber losses appear to have spooked investors. Comcast stock was down as much as $1.41 each (5%) in morning trading Wednesday to $26.72 per share before closing the day at $27.56, down $1.18 (4.1%).

In a conference call with analysts, Comcast chief operating officer Steve Burke said the MSO had expected subscriber losses of between 50,000-75,000 in the period because it has a large presence in Florida and in several college towns.

“We lost a little more than we anticipated because we had so much focus on driving margins and launching new products, and competition is stronger than ever,” Burke said. “We are going to redouble our efforts and try to concentrate on the second half and get the growth that we plan and would fully assume.”

At the company’s cable systems, revenue for the quarter grew 10.4% to $4.4 billion and operating cash flow increased 20.1% to $1.9 billion, fueled by growth in digital and high-speed-data subscribers.

Cash-flow margins (cash flow as a percentage of revenue) improved to nearly 39.7% from 36.5% last year, driven by 206,000 digital-subscriber and 327,000 high-speed-data additions in the period.

Comcast Cable Communications Inc. increased its guidance for full-year operating-cash-flow growth to $7.5 billion, or about 18%, compared with previous estimates of 15%-17%.

At its cable networks (E! Entertainment Television, The Golf Channel, Outdoor Life Network and G4techTV), revenue was up 25.3% to $199 million and operating cash flow increased 37.6% to $77 million.

Comcast also said it was on track to generate about $2 billion in free cash flow (cash flow after interest payments and capital expenditures are made) for the full year.

Chairman and CEO Brian Roberts said that at least some of that free cash flow will be used to repurchase Comcast stock. The company said it would buy an additional $1 billion of its stock this year. The MSO has already spent about $750 million repurchasing its stock during 2004.

Roberts added that it is a possibility that Comcast would move to acquire the rest of E! that it doesn’t already own.

Earlier this month, the MSO agreed to exchange its 120.3 million shares of Liberty Media Corp. stock for $545 million in cash and some programming assets from Liberty, including Liberty’s 10% interest in E! With that deal, Comcast owns about 60% of the network. The Walt Disney Co. owns the rest.

“We own virtually 100% of all of our other programming assets, so someday, that is a logical possibility,” Roberts said of acquiring the remaining E! stake. “We did buy the Liberty stake directly, so our ownership has been going up. We like the asset, but we have no prospect at the moment that it is going to change to be 100%.”