Comcast’s cable business looks fine, but its small advertising business shrank year-over-year.
One strong point: The cable industry continues to steal broadband market share away from its telco rivals. Comcast (CMCSA) added more new broadband subscribers last quarter — 382,000 — than both AT&T (T) and Verizon (VZ) combined. Comcast’s Q3 broadband subscriber growth jumped 37% from a year ago, the company reported this morning. (For comparison, AT&T’s Q3 broadband sub. growth dropped 70% this year and Verizon’s dropped 55% year-over-year — boosted by signups for its super-fast, fibre-optic ‘FiOS’ network, only available in some areas.)
Meanwhile, Comcast’s Q3 advertising revenue — stations like E!, Versus, G4 — dropped 10% year-over-year in Q3 to $374 million. On the company’s conference call, executives pointed out that Comcast had a disadvantage this year because the broadcast calendar was a week longer in Q3 last year. But, they noted, if you take out the $30 million in political advertising they got this year — and not last year or next year — ad revenue still would have dropped 10%, worse than the 4%-5% drops they’d seen the rest of the year.
Overall, Comcast’s quarter was solid. Sales of $8.55 billion barely missed the Street’s $8.59 billion consensus, and adjusted EPS of 24 cents beat consensus by 2 cents. Comcast also maintained its guidance for the rest of the year.
LIVE Conference Call notes
8:33 Classical music.
8:37 Call begins.
8:38 Brian Roberts: Think we’ll see we had solid financial results. Commenting on unique economic time. Is cable a good business? Is Comcast ready? I think yes. We clearly have a very strong company. About a year ago, we saw our world beginning to change: A softer economy with slower growth rates and more competition. So I look over the last 12 months… and I’m quite pleased with where Comcast is positioned. No one can see what’s going to come next. Can only have strong balance sheet and solid business… and I think we’re doing that. Talks about father’s experience with great depression. Don’t need to access capital markets any time for near future. Can internally fund all of our projects, which is an enviable position.
8:40 $2.8 billion in free cash flow this year. Expected full year goal in first 9 months; clearly on a path to exceed it. Made adjustments to anticipate slower growth in the future, managed expenses and capital, positioned company right where we want to be: Industry leader, provider of products our customers really look forward to.
8:43 CFO Angelakis going over stats from the release. Expect to hit previous guidance, though revenue at the low end of the range.
8:47 Cable ad revenue, when adjusted for one fewer week in broadcast calendar, and removing $30 million of political advertising, still decreased about 10%, worse than the 4-5% drop earlier this year.
8:49 Results impacted by hurricane; expect that to continue in Q4.
8:53 Purchasing millions of digital to analogue convertors to go all-digital. Still comfortable with full-year capex targets.
8:54 Plan is still for sustainable and profitable growth. Another priority is to return to shareholders through buyback and dividend; increased focus on free cash flow.
8:57 Steve walking through unit activity for cable business.
8:58 Lower digital phone activity because of housing market; now as many new opportunities when people move. Confident that plenty of room for growth left.
9:00 Now more than 1,000 HD VoD titles. Rolling out TiVo beyond Boston market; introducing more cities like Chicago in Q1 next year.
9:03 Confident we can keep operating cash flow and free cash flow up in the future.
9:03 Q&A begins
9:04 Broadly, the economy and slowdown affects certain parts of business and not others. When housing starts comes down, fewer opportunities for new subs, when existing homes go down, less activity — less connects and disconnects. Connects are lower than they were last year. Disconnects are not rising. Not that people are leaving service; less propensity to upgrade, move, take services when someone moves into town. Bad debt is very stable, ad sales is a very negative picture, but a lot of trends have been in the business the last year. Watching some metrics like bad debt very closely. All three products have lower churn than last year. Base, core, subscription side of business strong. We do see that AT&T and Verizon are both in a competitive position in many of the markets. We have more competition from wireline overbuilder; we see that October is an unprecedented month. A lot of our planning is to assume that Q4 and period we’re in is worse than 3-4 months ago. But this business has certain characteristics that can retard that; but it’s not getting better.
9:08 How actually preparing for slower growth? What do you specifically expect? Sending unscrambled digital signals? If you go back to ’07, and we’ve stated in ’08 guidance, stated we’d have slower rev growth. Customers are looking for packages, showing they still want cable and broadband product. Wireline phone some people are not getting wireline phone, just getting wireless, perhaps affecting growth rate.
9:10 Phone product represents the best value of any of our products. Other macro stuff that we’re just anticipating and dealing with.
9:10 You will need a D to A to get digital basic signal. In many cases, will be more secure than analogue; will not be using encryption initially, and that’s fine with programming contracts.
9:12 Dividends: Not making any change. Only had two dividend payments.
9:15 More competition from AT&T. In the past, really hadn’t seen much AT&T. More marketing? Seeing more competition from AT&T than Verizon right now, and that was exact opposite a year ago. AT&T has broader footprint, so much different than Verizon. More footprint related. Still think we’re taking more phone and broadband from them. Fairly expected what we think is happening; I don’t think there’s too much surprise. It’s clearly working, they’ve improved their hi-def offering. We assumed we’d lose subs, expected many more phone and high speed data. Data came in much higher than last year’s levels — a lot coming from DSL. Going to be able to go on proactive marketing campaign about 50 mbps.
9:28 Always known lots of analogue cable theft; much harder to steal digital signal. Anticipating some sort of buildup due to theft reduction.
9:32 Call over.
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