Concerns About Comcast Are Plain Wrong

by Jonathan Berr | July 31, 2013 3:12 pm

These days, conversation about Comcast (CMCSA[1]) is often followed by alarmist chatter about cord-cutting and NBC’s troubles attracting views in prime-time.

But to put it simply: They’re all blown out of proportion.

Not only is Comcast strong enough financially to address these issues, but such chatter coupled with low expectations from Wall Street is actually helping the company thrive more. In fact, the latest earnings report proves Comcast is alive and kicking.

In the most recent quarter, net income at the cable and media conglomerate surged 29% to $1.73 billion, or 65 cents per share, beating estimates by two pennies. Revenue also beat expectations with a 7% gain to $16.3 billion.

This is the seventh straight quarter in which Comcast has bested consensus forecasts and the company’s shares, which have surged about 40% over the last 12 months, traded up more than 5% on today’s earnings report.

And while the long-term trend of users quitting pay television services is indeed a problem for Comcast and its rivals, it is manageable one. One forecast says that cord cutters will account for about 5%[2] of U.S. television households by the end of this year. That leaves plenty of customers for cable and satellite providers.

See, most people aren’t going to say goodbye to their cable boxes anytime soon for a variety of reasons including laziness and fear of the unknown. Cable companies also offer sweet deals for customers to sign up for their triple play of service which includes high-speed Internet, voice and video.

The numbers of Comcast customers who had combined video, high-speed Internet and voice services totaled 52.1 million as of June 30 — a 3% year-over-year improvement. The company also gained 187,000 broadband customers and 161,000 voice subscribers in the latest quarter.

And while it lost 159,000 TV subscribers — mainly because college students disconnected their service ahead of their summer break — that figure was better than the 176,000 clients who left a year earlier.

Another big draw for TV viewers: sports. In my case, Comcast’s network in Philadelphia broadcasts most games of my hometown team, the hapless Philadelphia Phillies. The channel isn’t available on satellite services and Verizon’s (VZ[3]) FiOS isn’t available in my neighborhood.

If I quit Comcast, I’d have to say so long to the Phillies (though given how poorly they have played this year, I am tempted to do so).

Comcast has also been able to run the NBCUniversal media conglomerate far better than its previous owner General Electric (GE[4]). Revenue in the latest quarter in the media and entertainment business surged 9% to $6 billion while operating cash flow soared 21% to $1.2 billion, buoyed by the “Fast and Furious” series.

Strong cable performance was particularly noteworthy given how many channels — including the company’s CNBC and MSNBC networks — have faced declines in viewership.

Plus, broadcast television also did well as revenue jumped almost 12, driven by higher advertising revenue thanks to the popularity of “The Voice.”

Sure, Comcast will need to find a way to counter the cord-cutters, perhaps by offering channels a-la-carte, which it has opposed for years. But all things considered, Comcast is doing just fine.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned securities.

  1. CMCSA:
  2. account for about 5%:
  3. VZ:
  4. GE:

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