Disappointing 3Q Sub Growth at Comcast


Comcast Corp. reported strong revenue and cash-flow growth in the third quarter, but weak basic-subscriber gains in the period helped to drive down its stock.

The MSO reported revenue of $4.5 billion in the quarter (up 8.8% from last year) and operating cash flow of $1.6 billion, a 36% increase over the same period in 2002. Comcast also reported net income of $3.2 billion ($1.41 per share) in the quarter, largely due to a $3.2 billion gain from the sale of its 57% stake in QVC Inc. to Liberty Media Corp. in September.

Investors had trouble early on digesting basic-subscriber gains of just 800 customers in the third quarter -- well below some analysts’ estimates of 5,000-9,000 customer additions. Comcast stock fell 4% ($1.36 each) in early trading Tuesday to $30.89 per share, but the stock rallied to close at $33.40 (down 22 cents).

All of the subscriber gains came from the former AT&T Broadband systems, which added 23,000 customers in the period, barely offsetting the 22,000 subscribers historic Comcast systems lost in the period.

In a conference call with analysts, CEO Brian Roberts said the weaker subscriber growth was in line with company estimates, adding that Comcast is still on track to reach its year-end guidance of between 125,000-150,000 basic-subscriber additions.

Executive vice president, treasurer and co-chief financial officer John Alchin said on the call that the loss in the historic Comcast systems was mainly due to a redeployment of resources away from those systems and toward former AT&T Broadband systems.

And he pointed out that in the first nine months of last year, AT&T Broadband had lost a total of 434,000 subscribers, while during the same stretch this year, Comcast has added a total of 71,000 basic customers.

"This was critical. This is a lot easier said than done -- to take a negative momentum, completely arrest it and actually begin to have a positive momentum," Roberts said on the conference call.

Comcast also significantly improved operating-cash-flow margins (operating cash flow as a percentage of revenue) at the former AT&T Broadband systems to 33% from 26.4% last year. On a consolidated basis, operating-cash-flow margins were 37% in the third quarter.

The company had one of its strongest quarters in terms of high-speed-data-customer growth, adding 473,000 subscribers, a 39% year-over-year increase. Digital-cable subscribers rose by 318,000 to end the quarter at 7.3 million, a 16.6% increase over last year.

The high-speed-data growth was more impressive given the fact that several regional Bell operating companies have stepped up promotional and price-cutting efforts for their rival digital-subscriber-line services.

SBC Communications Inc., one of the more aggressive RBOCs on the DSL front, added 365,000 DSL customers in the third quarter, its best ever.

But Comcast Cable Communications Inc. president Steve Burke said the regions most affected by SBC -- Midwest and Western -- had the fastest data-growth rates of all of the MSO’s six divisions.

"There is no question that we feel that SBC is a more aggressive competitor than the other RBOCs," Burke said on the call. "But I think we’re standing up well."