Street's Sweet on Comcast


In its first earnings report since it bought AT&T Broadband in November, Comcast Corp. impressed Wall Street and investors with strong overall operating results and a dramatic turnaround in subscriber losses at the recently acquired unit.

Subscriber losses at AT&T Broadband had been problematic, after the company said it shed more than 500,000 subscribers in 2002. But in fourth-quarter financial results released last Thursday, Comcast said it lost just 9,000 customers during the period, well below some analysts estimates of losses of up to 100,000 customers.

According to its financial statement, Comcast said AT&T Broadband lost about 50,000 customers in the fourth quarter, offset by a gain of 41,000 customers in the Philadelphia-based MSO's pre-merger systems.

CS First Boston cable analyst Lara Warner was impressed, adding that AT&T Broadband lost 129,000 customers in the fourth quarter of 2001. The turnaround "shows that Comcast is making good progress toward stabilizing the customer losses," she said.

Investors drove up Comcast's share price by 7.1 percent, or $1.87, to $28.37 each.

In a conference call with analysts, Comcast cable unit president Steve Burke said the progress is continuing.

In December, January and February, Burke said the enlarged Comcast lost about 8,000 basic subscribers, compared to 170,000 last year. Comcast projects a subscriber gain in March.

Burke called the turnaround — Comcast estimates that subscriber growth will be flat in 2003 — as a matter of business as usual for the company.

"When we look at what's happened at AT&T, we think that was an abnormal situation," Burke said. "Normal, well-run cable companies should gain subscribers. There is nothing intrinsic in the systems or the situation that is causing it to be any different than any other cable situation. We think the ship has turned."

Burke said he did not believe the subscriber losses at AT&T Broadband were due to the poor shape of its cable plant.

Comcast did report a downturn in cash flow growth — 8.9 percent on a pro forma basis compared with 12-percent growth the prior year.

Banc of America Securities cable analyst Doug Shapiro wrote in a report that was likely due to merger-related expenses and accounting changes.

"The bottom line is that every indication so far is that Comcast couldn't have handled the first 100 days of the integration much better, in our view," Shapiro wrote. "It can sometimes be distasteful to listen to analysts falling all over themselves congratulating management on conference calls, but this is one example where we believe the company deserves enormous credit."

For the quarter, Comcast's pro forma revenue rose 11 percent, to $4.125 billion, and cash flow rose 8.9 percent, to $1.947 billion.

Video revenue rose 4.5 percent in the period.

Comcast would focus on growth in new services, like video-on-demand and high-definition television, said Burke, but plans to continue to roll out telephony will be put on hold.

"It makes sense to slow it [telephony] down," Burke said. "What you'll see in 2003, we'll be keeping the same telephony footprint, but we won't be expanding it."

Another segment that might see a slowdown is digital subscriber growth.

While Comcast added 389,400 digital customers in the quarter, ending the year at 6.6 million subscribers, Burke said the focus will be on profitability rather than unit growth.

High-speed data subscribers also rose substantially, up 367,000 to 3.6 million

Comcast estimated 2003 revenue growth would be in the high single digits.

Cash flow is expected to rise more than 26 percent, to $6.2 billion to $6.3 billion this year, from $4.9 billion in 2002.