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Comcast Really Wants to Talk About This Quarter

By Jamal Carnette, CFA - Feb 1, 2018 at 8:00AM

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The cable and ISP company has two major catalysts in 2018's first quarter.

Comcast (CMCSA 2.68%) closed out the year solidly. The cable company and (increasingly) internet service provider (ISP) reported solid fourth-quarter earnings last week, with adjusted earnings per share of $0.49 and revenue at $21.92 billion, versus analyst expectations of $0.47 and $21.82 billion, respectively.

Additionally, the company announced its intention to increase its dividend to $0.76 per share, a 21% increase over current levels, and a plan to buy back $5 billion in stock. While the company was happy with the results, Comcast appeared particularly optimistic about 2018, specifically the first quarter.

Man cutting his television cable cord with a pair of scissors.

Image Source: Getty Images.

Comcast will likely be able to talk about something besides cord-cutting

Thanks to investor apprehension about the core subscription television (video) business, Comcast stock trades at 16 times expected earnings, cheaper than the S&P 500, which trades at 19 times. The video business continues to shrink, albeit at a slower-than-expected pace. Analysts forecast Comcast would lose 45,000 video subscribers (business and residential) in the recently reported fourth quarter; Comcast lost only 33,000. Full year, the company reported a loss of 151,000.

The story of the first quarter will be less about cable subscribers and cord-cutters and more about programming. It's likely that the first quarter will be a huge one for television advertising through the company's NBCUniversal brand thanks to broadcast rights for the Winter Olympics and the Super Bowl, both in February. In 2014 NBC generated approximately $800 million from the Sochi Olympic Winter Games, and it's likely this year's event total will be higher.

Additionally, NBCUniversal has the rights to the Super Bowl on Feb. 4, an event from which it expects to make $350 million in revenue, according to The Wall Street Journal. The confluence of these events will significantly boost NBCUniversal's broadcast television division in the quarter; the company predicts both will bring in $1.4 billion in ad revenue.

During the quarterly conference call with analysts, Senior Executive Vice President Stephen B. Burke said:

And as we head off to the Super Bowl and the Olympics, it's not lost on us that if you're a big advertiser and you want to launch big brands and really make a material change in the way consumers think about you, you have to be in the big events on TV. And we have something like 2/3 of all the big nights on Broadcast Television in the next 12 months. So we think we're well-positioned for the ecosystem where it is, but we're hard at work creating the ecosystem that should be there that gives television all the positives that digital has.

Additionally, the company will benefit from the newly enacted tax cuts. Comcast reported a one-time gain in this quarter as tax liabilities were reduced. Lower taxes will continue to boost profits in the next quarter.

Longer term, Comcast is built to withstand video losses

Comcast is tethered to the television ecosystem more than other media companies are. First, there is delivery through its cable delivery business. Falling video subscribers means either Comcast reports less revenue from its cable business, or it will be forced to raise costs on the remaining subscribers. Second, having fewer subscribers across all video companies presents headwinds for the company's subscription fees for networks like CNBC, MSNBC, and The Weather Channel, and broadcast retransmission fees it receives to carry NBC.

However, it's done an admirable job navigating a tough environment. In 2017, although the company reported a decrease in video subscribers, Comcast was able to increase revenue attributable to video by 3.5% due to rate increases and upgraded services. Additionally, the company's high-speed internet revenue continues to grow at a rapid clip -- 9.1% in the last fiscal year -- allowing the company to withstand moderate revenue declines in video.

Additionally, the company has other businesses to lessen its dependence on video with its Universal Parks and Resorts and Universal Filmed Entertainment Group. With modest market expectations, diverse businesses, and short-term catalysts, look for Comcast to continue to beat analyst expectations.



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