At the Merrill Lynch Media & Entertainment conference a couple of weeks ago, executives from Comcast (NASDAQ:CMCSA) spoke to a gathering of analysts on its future plans for "triple play" success. To give you the inside scoop on what these analysts know that individual investors don't, I listened in and wrote up my thoughts.
The opening act
Co-CFO John Alchin warmed up the crowd by talking about the company's success with first launching new channels in video on demand (VOD), then creating a traditional, scheduled station out of the material people actually want to see. One example is the PBS Kids Sprout channel, and there's a VOD-only Horror Channel scheduled for debut around this Halloween.
John went on to highlight the newfound breadth of partnerships with set-top box manufacturers like Motorola (NYSE:MOT), TiVo (NASDAQ:TIVO), and Samsung. Going from two suppliers to five gave Comcast a better position in price negotiations, reducing hardware costs by 15% year over year while simultaneously giving customers boxes with more functionality. Everybody wins, it seems.
Then there's the "triple play" strategy. In the cable industry, companies like to track their customers as revenue-generating units (RGUs), meaning the sum of all analog-cable, digital-cable, and broadband-access customers. Digital phone subscribers have started to creep into these figures lately, too. A customer with high-speed Internet service and digital cable counts as two RGUs, and a full-blown triple-play customer counts threefold.
Play it again, Sam
As a result of Comcast's focus on tripartite services, RGU net additions have skyrocketed this year. In each of the last three years, the company added 2.6 million new RGUs, but it is on pace to exceed its original guidance of 3.5 million this year, with the new target set at roughly 4.2 million additions. That sound you hear is the ringing of cash registers.
Alchin rounded off his presentation with a look at the ways Comcast is returning capital to shareholders these days. This year alone, the company has bought back $1.4 billion worth of outstanding stock shares, invested $2.3 billion in forward-looking capital expense projects, and still kept free cash flow growing. That still leaves a shareholder-friendly $3.9 billion of the company's share repurchase program to be fulfilled.
Cable and phone companies often get a bad rap for being less than customer-friendly, and looking at Alchin's presentation, it's easy to see why. Comcast can benefit substantially from upselling customers on features they didn't necessarily want, and that's become an essential part of the company's overall strategy going forward. On the other hand, shareholders should be happy to see substantial stock buybacks, healthy revenue growth, and cash flow growth on the back of these selling tactics, and Comcast says that this is just the beginning of the triple-play success story -- we ain't seen nothing yet.
That wraps up the first part of our report from this presentation with Comcast, but stay on the lookout for more "Fool on the Street" reports that bring you juicy information that only the analysts have heard. Up next: Comcast marketing VP David Juliano.
Further Foolishness:
- There are many triple-play hopefuls out there.
- Verizon's (NYSE:VZ) high-bandwidth service keeps missing my neighborhood.
- Now, digital voice lines can't cure all that ails you.
TiVo is a Motley Fool Stock Advisor recommendation. To see how the plucky upstart can overthrow our TV-watching habits, try a 30-day free trial to our flagship service.
Fool contributor Anders Bylund holds no position in any of the companies discussed here, though he counts as two RGUs for his cable provider. You can check out Anders' holdings if you like. Foolish disclosure rules hear all and see all.
