: Comcast’s broadband growth slows but wireless may be a hidden gem

Comcast Corp.’s broadband subscriber growth slowed in the third quarter as expected, but analysts still found reason to cheer the cable company’s latest results.

Heading into the report, some had expressed concern about looming competitive challenges in broadband as well as the inevitability of a slowdown following a string of big gains earlier in the pandemic, and Comcast

had already alluded to the slower growth at an investor conference a month ago. In light of that disclosure and the well-documented fears, Comcast’s 300,000 broadband subscriber additions were “fine,” according to MoffettNathanson Craig Moffett.

Admittedly, the company’s discussion of fourth-quarter cable expectations could have been more encouraging, Moffett continued, and shares were off 0.9% in Thursday afternoon trading. Comcast’s cable chief executive David Watson disclosed during the call that the company anticipates full-year net additions around 2019 levels.

“That would suggest a significantly slower Q4,” Moffett wrote, though the company doesn’t appear to be facing many new challenges yet from incremental fiber buildouts, and it indicated high customer satisfaction, making for low churn rates.

There were positives elsewhere, in Moffett’s view, including within the cable segment. Comcast is growing its presence in wireless and added 285,000 wireless lines in the third quarter, making for the best quarter of net additions since the company launched its Xfinity Mobile business in 2017.

“In light of the large multi-line price reduction for family plans announced in Q2, it is perhaps not surprising that subscriber growth was so strong,” Moffett wrote. “But the fact that profitability continues to improve is a surprise.”

Overall, Comcast’s cable segment grew revenue to $16.1 billion from $15.0 billion in the third quarter, fueled by growth in broadband, wireless, and advertising revenue. Analysts had been modeling $15.9 billion in cable revenue.

Revenue for Comcast’s NBCUniversal Division jumped to $10.0 billion from $6.3 billion and came in above the FactSet consensus of $9.4 billion. Advertising revenue within the segment surged 73% in part due to the Tokyo Olympics.

The company also benefited from “improved operating conditions” that helped the theme-park unit grow revenue to $1.4 billion from $385 million in the year-earlier period, when the parks were closed or at limited capacity due to the pandemic.

“Revenue performance for Studios and Parks was encouraging during this stage of the reopening,” Citi Research analyst Michael Rollins wrote.

Spartan Capital’s Barry Sine said the NBCUniversal rebound highlighted the benefits of Comcast’s balanced business. “Comcast’s media conglomerate diversification strategy came shining through this quarter – just as cable broadband subscriber additions are slowing, NBC Universal came roaring back with revenue up 58%,” he wrote in a note to clients.

Moffett wrote that “even [Comcast’s] challenged ‘Media’ sub-segment is enjoying tailwinds from improved advertising trends (even absent the inclusion of the Olympics, which makes compares irrelevant).” Still, he argued that the company will have to spend more on its Peacock streaming service, which he dubbed a “disappointment” thus far despite subscriber gains.

Comcast saw revenue from its Sky pay-TV segment rise to $5.0 billion from $4.8 billion. Sky experienced lower content revenue due to changes in sports licensing agreements in Italy and Germany, as well as the timing of sports events relative to a year earlier, but it also saw higher advertising and direct-to-consumer revenue.

One high point in the quarter was Comcast’s $3.2 billion in free-cash flow, which came in at more than double Moffett’s estimate heading into the report. Free-cash flow is “the ultimate output of strong execution,” he wrote, though for Comcast investors, the company’s success here might paradoxically invite some concerns.

He said that “investors are becoming more nervous, not less” about the possibility that Comcast will ultimately use its huge stack of cash for a big deal.

Spartan’s Sine wrote that Comcast’s “de-leveraging and FCF growth are also driving an aggressive return to buybacks, which should benefit the shares from a technical perspective.”

On the whole, the company recorded third-quarter net income of $4.04 billion, or 86 cents a share, up from $2.02 billion, or 44 cents a share, in the year-earlier quarter. On an adjusted basis, Comcast earned 87 cents a share, up from 65 cents a share a year prior and ahead of the FactSet consensus, which called for 75 cents a share.

Comcast’s overall revenue increased to $30.3 billion from $25.5 billion as the theme-park and media businesses continued their recovery from the pandemic. Analysts tracked by FactSet were expecting $29.9 billion in total revenue.

Shares of Comcast have lost 10.2% over the past three months as the S&P 500

has risen 4.3%.

This post was originally published on Market Watch

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