Companies vary in numerous ways, but perhaps nothing differentiates the good ones from the bad more than managerial vision and competence. In my now somewhat lengthy career attempting to separate the investment wheat from the chaff, I can quite simply (and frankly) say I've never chanced upon an corporate entity with a management team I think is superior to Comcast's
For that reason, as well as cable's clear investment supremacy over most of the other media subsectors, I think it's important to provide my Foolish friends with an overview of the company's presentation at the recent Merrill Lynch U.S. Media Conference. That presentation, which was provided by John Alchin, Comcast's executive vice president and co-chief financial officer, was an excellent piece-by-piece overview of the company's now-renowned triple play, as well as a solid overview of its bigger-picture challenges and prospects.
As most Fools know by now, the triple play offered by the cable companies, including Comcast, Cablevision
While the individual offerings in the trio have generally been available for several years, it was only at the start of last year that Comcast really began deploying its package widely. In 2006 and thus far this year, subscribers have flocked to the company, verifying the notion that consumers prefer to receive one "bundled" bill for the three functionalities.
Great success
As Alchin noted, in 2005, Comcast added about 2.6 million revenue-generating units (RGUs). An RGU is one household taking one service. Last year, however, with the triple play introduction, the count for RGU additions more than doubled, to 6.5 million. And even the latter number is understated, because it doesn't take into account the approximately 500,000 legacy circuit-switched telephone customers (inherited from the acquisition of AT&T's cable systems) who will be moved to the VoIP product this year.
Looking at individual component metrics, the company added 1.9 million digital customers in 2006, and it topped that off with another 650,000 in the first quarter of this year alone. The latter figure represents an 82% hike from the 355,000 new digital customers in the first quarter of 2005.
Relative to the company's digital video offering -- and compared to those of satellite competitors DirectTV
The company is also adding high-speed data customers at a breakneck pace. Again in part because of a boost from the triple play opportunity, 1.9 million data subscribers were added last year, before another 563,000 joined up in the first quarter of this year. Perhaps just as noteworthy, 55% of the company's data customers were formerly connected to the Internet through the telephone companies' DSL products, which had long been thought to represent viable competition for cable-based high-speed data.
Portal performance
At the same time, largely because of its 12 million data customers, the company's portal ranks among the top 10 websites nationally as measured by searches, page views, and video streaming. In fact, Alchin predicted that Comcast's approximately $120 million investment in its portal will yield $1 billion in revenue during the next five or six years.
In voice, the 150,000 new subscribers added in the fourth quarter of 2005 jumped to 571,000 net additions in the first quarter of this year. And the telephone product is a terrific cross-pollinator, as 80% of the customers of Comcast Digital Voice also take the video and data offerings. Further, as a former boss of mine used to proclaim somewhat undeniably, its future appears to be ahead of it, since its penetration rate thus far has only reached about 7% of its homes passed.
Not long ago, the company also reported that it views the small-business market -- generally those companies with fewer than 20 employees -- as a prime area for the expansion of its telephone service. In fact, by Alchin's reckoning, such businesses constitute about a $25 billion incremental target market within the company's current footprint.
Alchin anticipates capital expenditures of about $5.7 billion this year. On a per-customer basis, Comcast typically spends about $300 in the voice area and $400 for each copy of its high-definition/digital video recorder set-top boxes. Indeed, the expected capex total was increased some months ago from the $4.6 million that had been expected earlier. But as Alchin says, there is a desire "to take advantage of the timing opportunity that we have with our current product superiority."
Nevertheless, managerial guidance for 12% growth in revenue and 14% increase in operating cash flow this year was recently extended as likely every year through 2009. How many companies do you know that are willing to lay it on the line that far into the future?
So, Fools, the metrics at Comcast are clearly on the rise. Add that to my strong feelings about the qualitative strength of the company's management team, along with a nearly 60% share price appreciation since the rollout of the triple play, and I'm admittedly hard-pressed to find a more solid media opportunity for my Foolish friends.
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Unfortunately, Fool contributor David Lee Smith tells Fools about Comcast too frequently to own shares in the company. He also doesn't own shares in the other companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.
