Don't Miss Cable's New Lift-Off

If ever there was a group with which investors relish finding fault, it's the cable companies. For instance, I've been watching Comcast (Nasdaq: CMCSA  ) for nearly a decade now, and during that time the company has been a constant victim of concerns about the ability of its competition to make mince meat of cable's products.

That, of course, hasn't occurred, nor have purported gremlins like Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) made serious dents in the cable companies' triple play offerings of digital video, data, and telephone service. Oh sure, the telephone companies have provided competition. But I'm here to predict that that competition will continue for years to come and that Comcast and its pals will at least hold their own during the process.

A pair of solid performers
Take the past week, for instance. Both Comcast and Time Warner Cable (NYSE: TWC  ) reported solid results for the first quarter of 2010. Let's first take a look at Comcast:

The company earned 12% more in the quarter -- $866 million, or $0.31 a share. Those numbers are up from $772 million, or $0.27 per share, in the comparable quarter of 2009. At the same time, the company's revenues increased by 3.8% to $9.2 billion, versus $8.9 billion a year earlier. The analysts who follow the company had formed a consensus that the bottom line would come in at $0.30 a share.

Increased advertising? You're kidding.
Looking at a metric that seldom was considered in the dark days of yesteryear for the cable industry, amid an economy that is still staggering and with advertising revenues continuing to shrink, Comcast managed to grow its own ad revenues by a whopping 24%. That change bodes especially well for Comcast's pending merger with General Electric's (NYSE: GE  ) NBC Universal unit, which depends largely on cable and broadcast revenue. According to Comcast CEO Brian Roberts, the companies are "somewhere in the middle" of the regulatory approval process for that combination.

But don't assume that all was completely sunshine and roses for Comcast. Video revenues dipped by 2%, as the slippage in video customers continued. In my opinion, however, that decline reflects a continued march to the digital format and away from analog, along with competition from satellite video providers DirecTV (Nasdaq: DTV  ) and Dish Networks (Nasdaq: DISH  ) . At the same time, however, Internet revenues were up 8.5% in the quarter, and digital voice revenues climbed by 13%.

If you've been a cable aficionado for at least a few years, you've probably caught on to the notion that the cable operators can be almost painfully slow in rolling out new functionalities. For instance, the operators took extensive time in rolling out video-on-demand and making its capabilities truly user friendly, a task that I'm not certain has been completed even now. On that basis, I was intrigued when Mr. Roberts offered on his company's conference call that 3-D could be the next major trend for television. The addition of that functionality would almost certainly raise the number of TV viewers substantially.

A good one from Time Warner Cable too
But lest I waste too much time and ink on Comcast, it's necessary to point out that Time Warner Cable also produced a solid quarter. The company's income increased year-on-year to $214.0 million, or $0.60 per share, from $164.0 million, or $0.48 a share, in the first quarter of 2009. Total revenues were $4.6 billion, an increase of 5.4%.

That still newly independent company also managed to increase its subscription revenues across the board, thanks partially to continued growth in digital video subscribers. At the same time, it was able to crow about increases in the numbers of high-speed data customers, along with growth in voice subscribers.

I think it shows a welcome trend for the cable operators that Time Warner Cable, like Comcast, was able to check in with a 19% in advertising revenues. For a number of years in its early heritage, cable was almost purely a subscription-driven technology. And while that trend clearly is still in place to a large extent, the increase in revenues from advertising -- especially in weak economic times -- bodes well for the group.

Time to buy some cable
My strong belief is that Fools -- who, like many investors have ignored the cable operators during the past couple of years -- may be wise to rethink that approach. It appears that cable may have weathered the worst of the competition from the telephone and satellite companies. At the same time, as an erstwhile analyst who covered the group, I found both Comcast and Time Warner Cable to be superbly managed companies. On those bases alone, there may well be money to be made by dropping some shares of either company into your portfolios.  

Fool contributor David Lee Smith doesn't own any shares of the companies mentioned above. He does, however welcome your question, comments, or kibitzing. The Fool has a disclosure policy.


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  • Report this Comment On April 30, 2010, at 10:00 PM, polenium wrote:

    If you have ever been a Comcast customer, you wouldn't be interested in puchasing their stock. They pad their bills, harrass you if you decline services and offer less than their competitors for higher rates.

    I will never do business with them again and I have family members that can't wait to dump them.

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