Comcast's Q2 profit down, free cash flow up
Thanks in part to costs associated with its merger with NBC Universal, Comcast's second-quarter earnings were down 8.6 percent, but the nation's largest cable operator saw a significant rebound in its advertising revenue and an increased demand for its premium services.
Comcast executives said on this morning's earnings call that they still hope to have the deal with NBC Universal completed by the end of this year. Comcast chief operating officer Steve Burke said he was more excited about Comcast purchasing a controlling interest in NBCU than when it was first announced in December and that Comcast was busy planning for the eventual merger.
For the second quarter, Comcast had a net income of $884 million, or 31 cents per share, which was down from the $967 million, or 33 cents per share, from a year earlier. Minus the costs related to NBCU and 2009 one-time tax benefits, Comcast would have earned 33 cents per share.
"Today we are pleased to report strong financial results for the second quarter and second half as we continue to focus on profitable growth," Comcast President and Chairman Brian Roberts said on the conference call. "In the second quarter, revenue and operating cash flow growth accelerated to 6 percent, and we generated 1.4 billion dollars of free cash flow, an increase of 16 percent."
Comcast's revenue rose to $9.53 billion from $9 billion. Thomson Reuters analysts had projected income of 32 cents per share on revenue of $9.3 billion.
Comcast's capital expenditures for the second quarter rose 1.5 percent to $1.1 billion, or 11.9 percent of total revenue, reflecting increased expenses in Comcast's business services, switched digital video, IP technology, advertising for its Xfinity branding and converged products.
On the cable side, Comcast's revenue rose 5.1 percent to $8.9 billion.
Comcast saw a rebound in advertising across all fronts, including the local, regional and national levels for cable, as well as increases in programming advertising. Cable advertising revenue increased by 23 percent, mainly due to automotive advertising, but all categories were up and political spending should continue to drive an increase throughout the rest of the year. Conversely, advertising had dropped by 21 percent the first half of last year.
Burke said that, currently, advertising accounted for $2.5 billion a year out of Comcast's total yearly revenue of $35 billion, but advertising could increase by $10 billion once the NBCU deal was down.
Video: Basic subs down, premium packages up
Comcast did lose 265,000 basic video subscribers in the quarter to end the quarter with 23.2 million subscribers. Neil Smit, the president of Comcast's cable operations, attributed the loss to a roll off of subscribers who had signed on to promotional deals during the national digital TV transition, as well as a typical seasonal slowdown.
Comcast's digital video penetration stands at 83 percent. The company increased its HD and/or DVR customers by 154,000 to 9.7 million, which is now 50 percent of its digital customers.
While basic subscribers were down, 394,000 customers opted for higher-end digital tiers, compared with 250,000 in the same quarter a year ago. Comcast's video revenue rose almost 1 percent to $4.9 billion due to customers paying higher rates and signing on for more expensive tiers, as well as increased on-demand revenues, the latter of which benefited from day-and-date releases of on-demand movies. The average bill for a video customer was $128 per month, which was an 8 percent increase.
Comcast reiterated that its analog-to-digital Project Cavalry initiative would be 60 percent completed by the end of the year. With the additional bandwidth, Comcast is offering roughly 100 new HD channels, 50 to 70 foreign language channels, more than 20,000 TV and movie choices in VOD, and DOCSIS 3.0 speeds.
Smit said Comcast has reduced its truck rolls by 25 percent in mature markets where the all-digital conversion has taken place. To date, Comcast has deployed more than 13 million digital terminal adapters since Project Cavalry was first launched two years ago.
Customers for Comcast's high-speed data tiers increased by 118,000, compared with a growth rate of 65,00 in the same quarter a year ago. Comcast currently has 16.4 million data customers with a penetration rate of 32 percent. Comcast's Smit said the company has added more data customers over the past four quarters than Verizon and AT&T combined.
Revenue for Comcast's broadband offerings increased by 10 percent to $2.13 million due to rate increases and customers opting for more expensive, faster tiers.
Comcast expects to have DOCSIS 3.0 deployed to 80 percent of its footprint by the end of the year. In the markets where DOCSIS 3.0 has launched, Smit said there was an "umbrella affect" with customers buying higher tiers of its other services, and that Comcast's faster tiers outsell its economy tier.
Comcast didn't spend much time talking about its wireless High-Speed 2go service other than to note that it's been rolled out in seven markets and that additional launches will continue throughout the year. Smit characterized High-Speed 2go users as a mix of business customers and subscribers who want mobile connectivity.
Over the last three quarters, data RPU has increased by 4 percent, while video has risen by 5 percent.
Phone subs, revenues increase
Comcast added 230,000 new phone customers in the second quarter, compared with 233,000 in the same period a year ago. Phone revenues rose by 14 percent to $916 million. Comcast has more than 8 million voice customers with a 16 percent penetration.
Business is booming
Comcast's business services revenue rose by 54 percent to $306 million in the second quarter. Comcast expects its commercial services revenue to continue to increase as it adds medium-size business offerings and moves into cellular backhaul and metro Ethernet opportunities.
Odds and ends
While Comcast is ramping up its on-demand offerings through Project Xfinity, Roberts did acknowledge the success of Netflix and that Comcast could do a better job in helping its subscribers find content on its program guide.
"They do a great job," Roberts said of Netflix. "I think one of the things Netflix does beautifully is to give people a convenient way to search for the titles they want, and to offer recommendations for other movies they might want to see. We don't have that capability with our electronic programming guide right now."
Roberts said that Comcast's network was the best option for delivering content and services to customers over the last mile, but that Wi-Fi will play a big role over the "last foot" in homes.
With the additional bandwidth from Project Cavalry, Roberts envisions more 3-D, interactive advertising, business services and ethnic programming in Comcast's future, but the company's goal is to focus on making sure it has the best platform in place to enable new services, devices and content.