Substandard news from Comcast is a real downer
Q3 net off 54%; sector stocks plungeCable stocks took a plunge Thursday, with some hitting 52-week lows, after Comcast management acknowledged that increased competition and economic worries have curtailed the cable giant's subscriber momentum.
Comcast lost more than 65,000 basic cable subscribers in the third quarter, for which it reported results Thursday, and that was more than analysts expected.
The largest U.S. cable operator reiterated its full-year 2007 guidance but also warned that "the more competitive environment and less-robust economy may have a slight impact on our full-year operating results."
Amid the more challenged environment, Comcast executives said they would "sharpen" their marketing to more aggressively compete for subscribers.
Industry observers have in recent months flagged concerns about basic and high-speed Internet subscriber momentum at cable firms (HR 9/12), which has put a damper on cable stocks since midyear.
Comcast's disappointing revenue-generating unit figures "will likely continue to remain a concern for the Street and reinforce current poor cable sentiment," Bear Stearns analyst Spencer Wang said.
Comcast Class A shares hit a 52-week low of $20.69 on Thursday before closing down 10.5% at $21.11. It was Thursday's second-worst performer on The Hollywood Reporter's Showbiz 50 stock index.
Other cable stocks also tumbled, with Time Warner Cable losing 8.2% to $29.40 after going as low as $29.25, the lowest level since the stock debuted this year.
Cablevision Systems declined 4.6% to $29.40, while Charter Communications lost 22.8% of its market value and closed at $1.97, Thursday's worst performer on the Showbiz 50.In a show of support for its stock Thursday, Comcast management unveiled a $7 billion increase in its share-buyback program, bringing it to $8.2 billion.
Comcast posted a third-quarter profit of $560 million, down 54% compared with a year ago, which included one-time gains. Excluding those, Comcast's bottom line saw a 2% increase.
Revenue jumped 21% to $7.8 billion, slightly exceeding the average Wall Street expectation, even though subscriber momentum in many cases fell somewhat short of estimates.
Overall, Comcast added 1.4 million subscriber relations, or revenue-generating units, down 6% from the nearly 1.5 million brought in a year ago.
While the cable giant lost basic customers, it added 489,000 digital cable subscribers, 450,000 high-speed Internet users and 662,000 digital telephony customers.
Goldman Sachs analyst Anthony Noto said that the telephony growth was lower than in the second quarter, which could cause investor concern.
Overall, "Comcast was still able to deliver double-digit growth in revenue and (operating cash flow) despite disappointing sub trends," he said.
Comcast's content unit, which includes cable networks E!, Style Network, Versus and G4, reported third-quarter revenue of $330 million, a 27% increase.
"I like our position," Comcast chairman and CEO Brian Roberts said during Thursday's conference call about the competitive marketplace, adding he is also "now more confident than ever" that 2007 will represent a peak year of capital expenditures for Comcast. Investors this year have expressed concern about spending, even though Comcast has emphasized it is all success-based in that it is for subscriber additions.
COO Stephen Burke also lauded Comcast's progress in rolling out commercial services, which target business customers. He predicted this business will gain traction in 2008.
Asked for details on how Comcast might sharpen its marketing approach, Burke told analysts: "We had a fairly open field for the triple play (bundle of services) for a year. And then our competition synthetically made a triple play."
Now, Comcast will become more aggressive in pushing one and two products, among other things, in what he called a "triple play 2.0" strategy.