Comcast Beats Street, But Growth Hits The Wall


Comcast’s (CMCSA) subscription model kept Q4 sales and profits in line with expectations, but new digital cable, broadband, and phone sales fell significantly.

On the company’s earnings call, executives admitted that competition from phone companies like AT&T (T) and Verizon (VZ) is increasing. And that the economy is slowing down the rate that new subscribers sign up for service and that
existing subscribers sign up for premium services. But customers aren’t rushing to downgrade their service, and aren’t fleeing cable altogether, they said — even as more, better video is available on the Internet without a cable box.

Comcast’s ad business shrank year-over-year, even with the benefit of political advertising. The company does not expect it to improve this year.

Overall, the cable giant posted $8.77 billion in revenue, beating the Street’s $8.64 billion consensus. And adjusted EPS came in at $0.27, beating the Street’s $0.22 estimate. But subscriber growth metrics took a big dive, reflecting the crappy economy and stronger competition from telcos.

WSJ: Comcast added 247,000 digital cable subscribers in the quarter, down from last year’s 530,000. It added 184,000 high-speed Internet customers, down from last year’s 341,000, and it added 340,000 voice customers, down from last year’s 490,000.

Comcast will not provide full-year guidance for 2009, according to the Journal.

“There’s a bit less visibility in the business than usual,” Comcast Chief Financial Officer Michael Angelakis told the WSJ. “We intend to grow the business in 2009, but we are very focused on expanding our conversation with our investors and shareholders instead of just providing a couple metrics that everyone focuses on.”

LIVE Conference call notes. Refresh for the latest. Paraphrasing unless in quotation marks.

8:31 Music hold. Uplifing classical tunes today.

8:34 Call begins. Standard disclaimers. New trending schedules available on IR site with lots of good stats.

8:35 Brian Roberts: Happy we beat or met all financial targets for 2008. That despite one of the toughest — if not the toughest — economy since we’ve been in business.

8:36 Producing signficant FCF. Increasing competition led to lower net sub adds.

8:38 Intensely focused on operating expenses. Reduced headcount in 2008 even while we invested in growth like Comcast Business Services. Mike will give details. Made changes to product offerings, included economy products for the first time. But also lots of HD for high-end.

8:40 Customer satisfaction metrics improving.

8:40 Wide band in 30% of homes. 90% of high-speed upgraded to smartzone. Any room on demand to 95% of homes passed. Docsis 3.0 and other bandwidth reclamation, by 2009 and into 2010, will recapture much of analogue bandwidth. Then more HD, on-demand, even faster Internet speeds.

8:43 Goal for 2009 is to continue to have profitable growth. Expect capex to decline overall and as a percentage of revenue.

8:44 Hard not to sit back and see uncertainty in economy, gridlock with consumers, etc. But I can’t think of a better place that I’d want to work than where Comcast is right now. Proactively managing expenses, FCF will help us grow, etc.

8:45 CFO going over numbers from press release and slides on IR site.

8:47 Slower growth due to competition, ad business stinks, softness in advertising in national programming networks at end of Q4. Accelerating momentum in business services.

9:01 Unlikely we will complete share buyback by end of 2009. Shifting to dividend. Increasing to 27 cents per share, per year.

9:02 Someone [Steve] is here to talk about what seeing. More competition from telephone companies. 10% –> 22% overbuilt by telcos. More price sensitivity. Particularly since the month of October. Customers appear to be defensive. Less likely to call up for upgrades. Connects — people coming into business — lower than we had planned. Very difficult ad sales environment that’s showing no signs of improvement. Not seeing increased disconnects. Actually less than planned. Churn right on track with prior years. Not seeing material increase in bad debt, not seeing downgrades, not seeing people dropping cable because they can get video on the Internet.

9:04 Watching bad debt and retention very carefully.

9:04 Seeing very significant drop in phone and data cost structure. Carefully monitoring and controlling capital costs.

9:06 As of mid-Feb, looking like things will do better than last quarter. Digital penetration now at 70%.

9:07 Launching Seattle, SF, and Philly as all-digital. Idea is to take 50-60 analogue channels. Frees up a lot of capacity.

9:08 More telco competition, they are pricing lower for short term market share gains. But 66% of new Comcast broadband customers came from DSL, vs 44% a year ago.

9:12 Huge pickup in business phone revenue in Q4 — 45% of year’s growth.

9:13 Delay of digital transition will cost us a modest amount of money because of increased staff. But think will provide more growth too. Seeing affects of digital transition in subscriber numbers.

9:14 Q&A to begin.

9:19 Promotions? $200 back if you sign long term contract. $200 promotion does look like a real winner.

9:19 Canoe: I don’t think our pace of investment or excitement about that business is affected by the economy. Bringing out first product, called creative versioning, this spring. A few other things very close to marketplace. Materiality of business is not going to occur in 2009, but very pleased with the direction. Such a big reward that would not be affected by the economy or current ad economy. Wireless: Deal really just closed and I think we’re seeing in Portland, which is their first market, the rollout continues. Put together market by market strategy. Obviously had large cash infusion. Wish capital markets were different. But we remain very excited about the relationship we have with Clearwire. The opportunity to bundle high speed data with mobility has never been tried before. Could have first mover advantage. Intel seems very committed.

9:24 Seems you were advertising less, promoting less. Any comments? It’s hard to describe the ebb and flow in the business. 3-4 competitors depending on the market. Fair to say in Q2 and Q3 we and most in cable industry did very well in high speed data. Appears they greatly increased spending in Q4. Trying to concentrate on long-term balance. Grow ARPU, units. I think in Q1 clearly seeing phones ringing more than they were. Always a balance. Not interested in generating hundreds of thousands of units with no value.

9:27 How will you try to get Hulu content on VOD? Still designed for 10% of subs using service? Peak load activity is really something we watch very carefully. Varies by node, area — want to make sure completing maximum number of streams. Very high penetration in some areas higher than 10%. Majority of very attractive product that people are getting on Hulu — huge amount is already on VOD platform. ABC, NBC, CBS shows. Lots and lots of very popular content. Lot of ideas in the future about ways to get more. Programmers very sensitive to fact that affiliate fees are big, not making much money on the Internet. Adding products to VOD with their ads. Streaming more than 300 million streams per month. Clearly people are viewing more video on the Internet, but more people are paying for multichannel video. Both sides growing.

9:33 How do you make sure Clearwire doesn’t take landline data business? Big strategy is to have most robust network, to let consumer make choice of what they want. The strategy of the company is to satisfy all consumers. I believe that a robust wireline network — and I think Verizon feels the same way — the needs in the home are going to be so great that wireline is going to feed applications. Video on the net, hi def video on the net, video chatting all growing in the home. If multiple hi def streams want to be happening, video games online, all sorts of activities — very reassuring place to be. Partnering with Clearwire to see where wireless goes so we have permanent access to whatever gets built with that 100 MHz of spectrum. Very unique and attractive greenfield opportunity. I do believe that speeding up the Internet is a great part of our strategy.

9:40 Call over.