Comcast Reverses a Six-Year Trend

The video subscriber run has been plugged, at least for now. With all segments showing attractive earnings and cash flow, Comcast looks to be a good pick.

Jan 30, 2014 at 10:00AM

This past week, cable behemoth Comcast (NASDAQ:CMCSA) injected a much-needed dose of positivity into the industry with a substantial increase in earnings and, more importantly, a higher number of TV subscribers. The so-called "unplugging" phenomenon has been the trend de rigueur for cable companies, and they've been forced to up prices in order to keep the financial statements attractive. While one quarter's results aren't indicative of a long-term anything, the fact that the company finally stopped a more than six-year consecutive subscriber bleed is well worth noting. So, let's take a closer look at the recent earnings to determine if Comcast has found a way to compete with the biggest industry disruption since cable itself.

A hit!
Comcast couldn't have asked for a better quarter as pretty much every reportable segment showed strength. NBCUniversal (which the company now completely owns, as opposed to its prior 51% position), showed sales gains of 7.5% with a 14.3% bump in operating cash flow. The cable business grew sales by 5.2% while operating cash flow increased 4.8%.

The company has been able to post positive subscriber additions at various times over the years, mainly driven by the broadband business. This quarter, however, it showed 43,000 more video subscribers. While not a huge number, this ends a 26-quarter run of negative video subscriber growth.

All in all, the company saw fourth-quarter revenue rise 6.2%, with adjusted EPS up 26.9% to $0.66. Across the board, Comcast beat analyst estimates.

Inflection point?
The big question here is whether Comcast has found a way to combat the Internet streamers and convince consumers that its video entertainment is comparable in both a consumer preference way as well as financially.

At this point, it's too early to say that Comcast's video subscriber trend has stabilized. For the full year 2013, the company is still looking at about 300,000 fewer subscribers -- a much more significant figure than the 43,000 it gained in the last three months. As has been the case, though, high-speed Internet subscriber counts continue to rise precipitously (up more than 1 million in 2013), which, coupled with price hikes, have kept the numbers growing steadily.

The cable business is just part of this giant business, and investors could easily look to the other parts of Comcast as a reason to buy. Theme parks grew sales nearly 9%, broadcast television saw 11% gains, and even the filmed entertainment (movies) made more money -- up 5.7% on the back of successes such as Despicable Me 2 and Fast and Furious 6.

One more thing to watch...
Charter Communications made waves at the beginning of this year when it made public its bid for the much bigger Time Warner Cable. While the offer was initially rebuffed, speculation has come about suggesting that Comcast could join up with Charter (backed by Liberty Media) to make a more attractive offer. With Time Warner Cable's substantial presence in both video and Internet, it would further solidify Comcast as the dominant cable company. This has implications beyond just subscriber counts as the company would gain substantial pricing power over content owners, broadcasters, and the like.

All in all, Comcast looks to be firing on all cylinders. Though juggernaut companies like this aren't typically sources of high-growth stocks and skyrocketing share prices, the long-term future for Comcast looks pretty enticing.

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Michael Lewis has no position in any stocks mentioned. The Motley Fool owns shares of Liberty Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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