Sub gains propel Comcast

Adelphia integration almost done

Comcast Corp., the largest U.S. cable operator, reported an 80% increase in its first-quarter profit Thursday, driven by record quarterly subscriber growth overall and in key product categories. Also providing a boost was a one-time gain from disentangling a joint venture with Time Warner Cable.

Comcast COO and Comcast Cable president Stephen Burke said in a conference call that the integration of cable systems acquired from Adelphia Communications is 80% done, well ahead of schedule, with margins already improved from the low-30% levels to 40%-plus.

Management also said day-and-date VOD film trials show that revenue from this approach adds to overall film revenue for Comcast and studios rather than cannibalizing their business. Burke said the increase in movie buying is "very substantial" in markets with day-and-date trials.

He also said Comcast is in talks with studios to expand the trials to a third market and hopes to roll it out on a broader basis "in the not too distant future."

Oppenheimer & Co. analyst Thomas Eagan said Thursday: "Longer term, we expect Comcast's ability to offer VOD access to new studio releases (on the same day they hit home video) will provide key competitive advantages over satellite TV."

Comcast posted a quarterly profit of $837 million, compared with $466 million a year ago. The figure for the latest period included a $300 million gain from the separation of a venture with TW Cable in Texas and Kansas.

Comcast's first-quarter revenue jumped 32% year-over-year to $7.39 billion.

As management predicted, free cash flow declined in the latest quarter as the cable giant continued to aggressively sign up customers. The $442 million in free cash flow was nearly half the $807 million recorded a year ago.

Comcast said it added 75,000 basic-video subscribers during the first quarter, up from 50,300 a year ago, bringing the company's total subscriber base to 24.2 million. Comcast also signed up 644,000 digital cable customers, up from 355,000 last year and a new quarterly record for the company.

High-speed Internet user growth reached a quarterly record as well at 563,000, up from 511,500 in first-quarter 2006. And Comcast added 478,000 telephony subscribers, up from 163,000 last year.

Overall, Comcast reported its highest number of quarterly revenue generating unit additions in its history at 1.8 million, a 63% increase compared with the same quarter last year. It was the firm's third consecutive quarter of record-breaking RGU gains.

"We are off to a fabulous start to the year and see increasing momentum as we move ahead," Comcast chairman and CEO Brian Roberts said. "Strong consumer demand for our superior products delivered through our triple-play offering resulted in another quarter of record performance at our cable division — and we are just getting started capitalizing on the triple-play opportunity."

The strong subscriber momentum boosted revenue at Comcast's core cable unit 12% in the first quarter to $7 billion, even though advertising revenue fell 3% partly because of to an additional week in the year-ago period.

Comcast's cable network unit, which includes E! Entertainment Television and Versus among others, boosted its quarterly revenue 27% to $302 million.

For full-year 2007, Comcast reiterated its previous guidance, including cable revenue growth of at least 12%, overall revenue growth of at least 11% and RGU net additions of about 6.5 million, up 30% compared with 2006.

Wall Street generally lauded the latest Comcast results.

"Most importantly, RGU adds continue to exceed estimates while (capital expenditure) was in line," Goldman Sachs analyst Anthony Noto said.

While Comcast shares have been restrained this year thanks to concerns about heightened spending on subscriber growth, Noto said "investors should feel comfortable that the company's (capital spending) is indeed success-based and will drive growth and returns."

Credit Suisse analyst Bryan Kraft said: "The core subscription part of the business is performing stronger than we had expected due to stronger average revenue per user in all three service lines and lower expense growth. … That said, the stock has had a strong run into the quarter, and we do not see today's results as a catalyst for further near-term upside."

But with Comcast shares declining Thursday, some others said that provides a buying opportunity.