UNIVERSAL STUDIOS, ORLANDO, FLORIDA, USA – 2019/07/18: Comcast logo in the wall of a building at Universal Studios. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
Roberto Machado Noa | Light flare | Getty Images
Comcast beat Wall Street’s third-quarter earnings and revenue estimates on Thursday, but revealed widespread pressures in its broadband unit that spooked investors.
The company said it lost 104,000 domestic broadband customers during the period, bringing its total subscriber base to around 31.4 million. This marked the fourth straight quarter in which Comcast failed to grow its broadband customer base.
Earlier this year, the company outlined initiatives intended to spur growth in broadband — the cornerstone of Comcast’s business — as it faces stiff competition from alternative providers, including 5G companies. The company, soon to be led by co-CEOs Brian Roberts and Mike Cavanagh, will be even more dependent on connectivity in the new year after its planned Versant transaction to shed cable network assets.
During Thursday’s call with investors, Cavanagh reiterated that “the broadband environment remains extremely competitive.”
Comcast management said the broadband business would see a decline in profits as its strategy to focus on the mobile business, simplify bundles and improve broadband and WiFi-related products is implemented. This decrease began this quarter and will continue over the next few quarters, he added.
Chief Financial Officer Jason Armstrong also said the division’s average revenue per user, or ARPU, is not expected to increase as the company focuses on initiatives to maintain and grow its customer base. As broadband subscriber additions have slowed or reversed, Comcast has generally focused on increasing the company’s ARPU, which is driven by price increases and upselling packages.
The change in the broadband playbook means that the bright spot that was once increased ARPU no longer exists in the near term for Comcast.
“As we’ve said all along, there are several costs associated with this pivot, including reinvestment in rates through pricing simplicity, which results in revenue dilution, as well as investment in customer experience, which results in additional operating costs,” Armstrong said on Thursday’s call.
This is the first quarter in which these costs have affected Comcast’s bottom line, Armstrong said. This translated into a 3.5% decline in earnings before interest, tax, depreciation and amortization across the company’s connectivity and platforms businesses – including broadband, mobile, pay TV and other services.
Revenue from the company’s overall connectivity and platforms business was $20.18 billion, down nearly 1% from the same period last year.
“On the other hand, we are positioning ourselves for growth with a more sustainable broadband customer base,” Armstrong said.
The refocusing of the broadband strategy also aligned with a change in direction of the unit.
On Thursday, Comcast announced that Steve Croney would take over as CEO of the connectivity and platforms division, succeeding longtime leader Dave Watson. Croney serves as group operations director as part of its new strategic push.
As Comcast has shifted its focus to mobile, that customer base has expanded. Comcast announced Thursday that it added a record number of mobile customers – 414,000 in the third quarter, bringing its total to 8.9 million lines.
Meanwhile, the exodus from the pay TV package continued, with Comcast reporting that the segment lost 257,000 customers during the period. As of September 30, Comcast had 11.5 million national pay TV customers.
The company’s shares were down about 4% in early trading. Last year, Comcast shares fell about 35%.
Beyond broadband
Comcast’s overall business, which includes the Xfinity-branded broadband, cable TV and cellphone group as well as NBCUniversal, outperformed Wall Street estimates.
Here’s how Comcast performed for the period compared to average analyst estimates, according to LSEG:
- Earnings per share: $1.12 adjusted vs. $1.10 expected
- Income: $31.2 billion versus $30.70 billion expected
For the quarter ended Sept. 30, net income attributable to Comcast fell 8% to $3.33 billion, or 90 cents per share, from $3.63 billion, or 94 cents per share, a year earlier.
Taking into account one-time items, such as interest expense and the value of certain assets, Comcast reported earnings per share of $1.12 for the quarter.
The company’s adjusted EBITDA fell about 1% to $9.7 billion.
Overall revenue fell nearly 3% to $31.2 billion from $32.1 billion in the same period last year.
Revenue at the company’s media unit, which houses NBCUniversal, was $6.6 billion, down nearly 20% in the period.
Excluding the impact of the Summer Olympics, which took place at the same time last year, revenue increased 4% year-on-year.
The media division reported EBITDA of $832 million, up 28% year over year, driven in part by streaming service Peacock.
Peacock, which had 41 million subscribers as of Sept. 30 — essentially flat over the past three quarters — reported losses of $217 million for the quarter, an improvement from $436 million in losses during the same period last year.
In October, NBCUniversal’s media rights deal with the NBA began, bringing professional basketball back to the NBC broadcast network and introducing it to Peacock. The addition of the NBA should give Peacock a boost.
Meanwhile, the movie studio’s revenue rose 6% to $3 billion – boosted by the release of “Jurassic World Rebirth” in July.
Theme park revenue rose nearly 19% to $2.72 billion, with EBITDA for that unit up 13% to $958 million due to the opening of Epic Universe in May.
Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC in Comcast’s planned spinoff of Versant.