Comcast (CMCSA): Economy Declining Since Q3

Joining this call live with Michael Angelakis – Executive Vice President & Co-CFO, who’s in the process of delivering lots of bad news.

Last night Comcast revised expectations downward; recently you had reaffirmed guidance. What gives? We did it because of today’s conference, so we can have an honest conversation.  Some details: We’re spending more on capex: growth is a little flat, and churn is up. Free cash flow has come down.

How much of your slowdown has to do with the economy? We’ve seen a  “real softness” in the the market since Q3 because of macro economic issues, and competitive issues (telcos, satellite). Advertising has been a “step down” process from our expecations. Automotive advertising a specific problem.

But! 2008 should be better. Political cycle good for advertising. And we’ve got other organizational changes in the works.

More downturn talk: Credit crunch and housing weakness are indeed affecting CMCSA. We’re dependent on homes passed, and foreclosures not good for that, and we need to be more diligent about credit scoring. “This is not a robust economy.” We’re also experimenting with lower-priced offerings to work on retention/churn.

Capex: Next year, we, need to be a bit more transparent about how we spend money. Basically three categories: Maintenance capex; discretionary, non-recurring capex; growth capex. The onus is on us to explain that better.

Competition: We’re really well positioned re: Verizon, AT&T, Satellite. We’re in a good shape re: HD but we haven’t marketed that well. On high-speed data, our product is better. I’m “quite comfortable with our customer base.”

But Verizon is a now effectively a Top 10 MSO, with 700k subs. Is this showing up on your radar? Yes. We will lose some customers to them (but I’d love to know their customer acquisition costs – those 19″ TVs aren’t free). We will lose some basic subs to them, but we’re going to compete when appropriate, not going to burn money on this.

Wireless: Comcast not in wireless now (and not entering FCC auction). We can do really well with triple play; I don’t see wireless being that impactful in the short-term.

Q&A: Small business is “low-hanging fruit” for us.Started investing in team to target this sector this year, big growth 2008.

Organic growth v. Acquisitions? We’ve bought a bunch this year (Fandango, etc), but right now “we’re pretty inwardly focused.”

Why should I invest in CMCSA? Macro econ issues slowing growth, ARP maybe slowing down, reluctant to use debt? We have to execute better, take on competition better, and macro issues in some cases beyond our control. But we did well in 07, and can do better going forward.

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