Comcast's Capex Conundrum

Sometimes the market can be so perverse. Such was Comcast's (Nasdaq: CMCSA  ) sorry lot on Thursday -- its quarterly profit tripled, but the stock sank about 3.2% on the day.

By most analysts' reckoning, the decline was largely due to management ratcheting up its estimate for 2007 capital spending. At approximately $5.7 billion, that would be nearly 20% higher than the $4.8 billion Wall Street had anticipated.

According to CEO Brian Roberts, most of the added amount is earmarked for an accelerated introduction of new products -- including high-definition video -- and as part of the program to target small- and medium-sized business as potential subscribers for some or all of its "triple play" offerings, particularly telephony. However, had Roberts forecast a lower capital spending total, there likely would have been a hue and cry over a perceived lack of effort to ward off threats to cable from newly video-wielding telephone companies Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) .

Among Comcast's more meaningful metrics for the quarter was an increase of 14% in cable revenues and a 17% growth in cable operating cash flow. During the quarter, the company added 613,000 digital video subscribers, along with a net of 508,000 digital telephone customers and 488,000 subscribers to its high-speed data product. These figures helped the company increase its quarterly revenues by 30% year over year to $7 billion, and to increase diluted per-share earnings to $0.18, from the $0.06 recorded in the same quarter of 2005.

Comcast also announced that it had repurchased $2.3 billion worth, or 75.4 million, of its Class A Special Common (CMCSK) shares during the year, with $447 million of those purchases occurring in the fourth quarter. Also announced: a three-for-two stock split in the form of a 50% stock dividend, payable on Feb. 21 to shareholders of record on Feb. 14.

Now, with 2006 effectively wrapped up, I believe that there are two primary questions Fools should ask, especially following yesterday's numbers and the approximately 65% share-price increase Comcast has enjoyed since the beginning of last year:

  • Is it still logical to contend that the Brian Roberts-led team at Comcast is one of the best management groups around, regardless of industry?
  • Can cable fend of the progressively more noticeable incursions from the telephone companies?

For question one, I see no reason to alter my earlier comment: The Roberts team is the most capable group I've yet encountered.

As for question two, I see increasing evidence that Comcast, Time Warner (NYSE: TWX  ) , Cablevision (NYSE: CVC  ) , et al., will ultimately be forced to battle the telecom companies tooth and nail for subscribers. But the Comcast crew is, I believe, up to the task. And they currently have a video-on-demand content lead that will stand them in very good stead, probably for several years to come.

For related Foolishness:

Time Warner is a Motley Fool Stock Advisor selection. Discover more of Tom and David Gardner's superior stock selections with a free 30-day trial subscription.

Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments.


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