The backdrop seemingly remains grim. Advertising industry research outfit eMarketer recently forecasted that spending on television ads would slip nearly 3% this year, to $70.3 billion, confirming that last year's $72.4 billion was an industry peak. With the exception of next year's frenzy of political ads, eMarketer's forecasters believe television ad revenue will dwindle at least through 2023.
Blame the so-called cord-cutting movement, of course. In turn, pity the cable television middlemen like Time Warner/Spectrum parent Charter Communications or satellite TV purveyor DISH Network.
Just don't lump Comcast ( CMCSA 1.10% ) together with the rest of the industry's most recognizable names. Comcast is doing just fine. See, cable TV might be its biggest single operation, but it's still a relatively small piece of the revenue mix, and most everything else it does is doing quite well.
Numbers don't lie
For investors keeping tabs, Comcast lost another 238,000 video subscribers during the third quarter. That's a lot, though not an unusual pace for the cable television industry. S&P Intelligence Group's Kagan research arm estimates the United States' entire cable industry lost another 1.9 million paying customers in Q3, and UBS believes next year's total losses will reach 6.2 million. That's down slightly from this year's pace, though a sizable chunk of the 85.1 million customers were still signed up as of the end of October.
Fortunately for Comcast, it's not a crippling headwind. Video is the company's biggest revenue driver, but it still only accounts for one-fifth of revenue. High-speed internet service is gaining importance as a revenue contributor, and interestingly enough, Sky's direct-to-consumer product is Comcast's third-biggest arm, making up nearly 14% of its business.
The company doesn't break down its EBITDA results with as much detail, though it's still possible to draw some meaningful conclusions from what's offered. Namely, the cable communications grouping that manages both the internet and cable television business is still a cash cow, accounting for nearly two-thirds of Comcast's total earnings before it divvies up interest payments, taxes, and depreciation. Its cable business did suffer something of a hit last quarter, leading to a $163 million sequential stumble in its total EBITDA figure. It's survived worse, though, and should ultimately shrug off this headwind as well.
Two related metrics illustrate why the company can keep growing.
Comcast, in short, is still adding paying customers. The loss of cable subscribers is clearly working against that progress. But that downside is being more than offset by the addition of business video subscribers, high-speed internet customers, and -- surprise! -- wireless phone services it's launched as a means of making bundles for consumers who increasingly demand them.
Perhaps more important is how well Comcast has been able to monetize these members. The average revenue per user as of the end of the third quarter was $156.72 per month, with $62.34 of that amount being booked as EBITDA. Those numbers were up 0.5% and 3.2%, respectively, on a year-over-year basis.
The numbers won't qualify Comcast as a growth stock, but they're hardly cause for panic.
Putting the pieces of the Comcast puzzle together
Most investors are surprised to learn the aging cable behemoth has remained relevant in the new digital world, and to be clear, Comcast is hardly thriving. It's been forced to acquire operations like Sky and take on the expense of starting a new wireless service (albeit with help from Charter and Verizon) in order to secure what's admittedly tepid growth. It's also embracing -- rather than resisting -- streaming video, announcing in September it would provide a free streaming player to internet customers who aren't also cable customers. It's a fairly restrictive device, but it's another step toward keeping those customers around.
The strategy seems to be working all the same. It's clunky at times, to be fair, and there's no sidestepping the reality that traditional cable TV is a sinking ship. Comcast can only hope to slow that deterioration to a crawl. What it's not been able to contain on that front, however, it's been able to offset.
Most compelling about the company's revenue mix is how many different kinds of businesses Comcast is in. Normally this much diversity might prompt an organization to shed some assets so it could better focus. This particular combination works, though, as all of these divisions are closely related and allow for effective cross-usage of content and properties. Universal Studios' hit movie franchises, for instance, are leveraged at its theme parks and also effectively reutilized as licensed content.
That's one area, in fact, where Comcast could arguably do more -- cross-market services and content to existing customers who might currently be paying for only one particular product. About one-third of its customers subscribe to only one of its services, and another third are paying for just two.
Still, there's a reason the cord-cutting apocalypse isn't dragging Comcast under: Comcast just isn't all that dependent on cable TV.