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 Comcast beat the Street's Q2 revenue prediction, but posted a lower profit than analysts expected.
One obvious reason: The housing slowdown, which Comcast CEO Brian Roberts refers to as the "challenging economic environment" in his canned earnings press release quote.
No super-gloomy economic talk on the company's conference call, but Roberts noted that new customers are increasingly jumping on promotional offers -- "people are much more inclined to comparison-shop" -- and that some customers have called to figure out how they can cut their monthly bills. "There is clearly sort of an economic tension out there, but I wouldn't say that we're having premium customers downgrade," Roberts said.
One area of Comcast's business that is feeling pressure from the economy: Its advertising business. Ad revenues decreased 2% year-over-year to $399 million.
Despite the sales beat, the cable giant maintained its full-year guidance, which includes 8%-10% estimated revenue growth. That could disappoint; the Street is projecting 11.3% full-year revenue growth.
As we had suspected, it looks like the cable company took broadband Internet subscriber market share from telcos last quarter: Comcast (CMCSA) added 278,000 net broadband subscribers during Q2, down 18% from 339,000 in Q2 2007, but still much higher than AT&T's (T) 46,000 and Verizon's (VZ) 54,000. During the company's conference call, Comcast confirmed the trend: It said two-thirds of its broadband net adds were coming from DSL.
Growth also slowed in Comcast's other divisions: The company added 320,000 digital TV subscribers during Q2, down from 823,000 in Q2 2007. But the company said the deceleration was "anticipated," as it upgraded a disproportionate number of its subscribers to digital last year ahead of a July 1 regulatory deadline. Meanwhile, the cable giant lost a net 138,000 basic cable subs during Q2 -- an expected loss, but worse than 101,000 in Q2 2007. And digital phone growth slowed, too. Comcast added 555,000 net new phone customers last quarter, down from 692,000 during Q2 2007.
Silver lining: Comcast subscribers are spending more money on service each month. Customers' average monthly bills were $109.66 last quarter, up 8.6% year-over-year.
Key Stats:
Revenue: $8.6 billion vs. $8.5 billion consensus, up 11% y/y
EPS: $0.21 vs. $0.23 consensus
LIVE Conference Call Notes:
8:30 a.m. Waiting for call to begin.
8:36 Brian Roberts joins. As revenue and units grows slower, working on expansions. Some higher margins even as we continued investing. Second quarter capex 20% lower than last year, focused on returns and growth. "Fighter budget" on track, investing to recapture bandwidth. Later in the year, will begin to deploy DOCSIS 3.0 and all-digital lineup to 20% of cable market.
8:39 CFO joins. Going over results from press release and slideshow.
8:43 1/5 of customers took all 3 triple play products, vs. 1/9 a year ago. Getting good customers: Premium tier beating budget tier 4 to 1.
8:45 Expect higher political ad spending in second half.
8:46 Costs lower. Migrating more internet traffic to own network. Focused on bad debt expense; back to where it was last year.
8:47 Increasing marketing spend, will continue.
8:49 We are also being impacted by housing slowdown. Less new housing construction.
8:52 On target for 20% FCF growth.
8:54 Now that phone business is scaled, reduced hiring, increasing productivity. 13,000 handheld devices for technicians. Direct unit cost continued to declline, down approx 40%. Capital costs are reduced too. VoD costs down 40% per stream.
8:56 2/3 of broadband net adds came from DSL. "DSL is the new dialup"
8:57 Getting out of circuit switched phone business from AT&T broadband. It's been a drag.
8:58 Difficult year for the economy and the country.
8:59 Q&A begins
9:00 Program cost increases? Each year a little different. Some things happening in sports... upward momentum on price. Generally think we're comfortable that no great change happening on the edges.
9:04 Expecting a lot of new basic customers from FCC's shift to digital over-the-air broadcasting
9:05 Basic sub growth by getting rid of piracy because you can encrypt better? Right now only parts of country. Initial results indicate a lot of good things happen: Theft loss, elimination of truck rolls, etc. Good solid economic returns.
9:07 Video share: How dealing with competition? Nintendo Wii giveaway margins? In an age where more and more people want to use Internet video, think that proved out this quarter.
9:12 Business services starting to ramp. Added 90,000 units in business space, vs. 47,000 in Q2 last year. Now have a lot of sales people on board, they've been trained. 8-line phone product. In my mind, the velocity of ramp is speed up, now slowing down.
9:13 Consumption-based billing model: We disagree with the FCC's apparent finding by 3 commissioners; believe network management "reasonable," never blocked any websites or applications, points to WSJ editorial. That said, we've already said we were going to adjust network management techniques to go back to consumption-based model for individual consumers. (Didn't answer question about billing.)
9:17 Focused on execution. Look at a number of acquisitions. Referenced a few of them. Very disciplined. Cable/DSL: Look at amount of video streamed on the Internet, growth in usage is phenomenal. As they use more bandwidth-intensive apps, offering much higher data speeds is a platform advantage. Intend to get very aggressive with DOCSIS 3.0. 50-100 mbps.
9:22 Economy: No premium downgrade trends. More promo activity when they sign up. More comparison shopping. Some customers calling and saying need to cut prices. Economic tension, but can't say really a downgrade.
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