Summary
- Comcast had a quiet quarter based on content-timing issues, but it is still attractive as a long-term media play.
- The company will be able to use its large customer base and Xfinity/Sky ecosystem to push the upcoming Peacock streaming service.
- NBCUniversal is a key part of the company's collection of assets; its content can be used to drive all of Comcast's platforms.
- Valuation is a mixed bag, but I like Comcast stock on pullbacks and believe its dividend will grow over time.
Comcast (CMCSA) reported mostly solid earnings for the fiscal third quarter (with some exceptions, as I will discuss). The cable and content company keeps moving along with its story of cash-flow generation and long-term dividend potential as it navigates the new streaming world. Add to that the recent purchase of Sky, and you've got an interesting media scenario.
For me, the key part of the company is NBCUniversal, because content will eventually drive the streaming plans. There no doubt will be plays at exclusivity for certain library content (think stuff like The Office), but there will also be future original content that will likewise be exclusive, as well as content that continues to mine value from the traditional distribution system that Disney (DIS) currently favors and that is currently eschewed (for the most part) by the still-disruptive Netflix (NFLX): theatrical distribution with a fully-intact window before physical/digital release to retail/online, followed by porting to pay-TV and streaming.
Comcast continues to be a long-term buy after the current earnings report, even with the weak reaction on the day it was issued.
The Quarter
Comcast's adjusted bottom line of $0.79 in earnings per share was ahead by five pennies. Revenue of $26.8 billion was essentially in-line. The top line appreciated by over 20% and the bottom line increased 16%.
It was a quiet quarter for cash flow, as operational activities generated a decline of 13% to $5.2 billion. Free cash flow dipped well over 30% to $2 billion. According to the transcript, free cash was affected by sports rights involving the Sky asset. Sky obviously will affect the numbers for a while, but it should be noted that nine-month cash flow from operations was up 5% to $19.4 billion and free cash edged up over 3% to $10.9 billion. Would be great to see higher growth rates, but with these large numbers, sometimes you take what you can get.
As for the all-important customer relationships, CEO Brian Roberts highlighted that the metric is at 55 million. Of course, digging in, it becomes obvious that the company continues to be challenged by the cord-cutting entertainment consumer. The two/three-product residential households are down while the one-product base increased. The video and voice businesses saw declines while broadband (no surprise) expanded. Wireless also was a bright spot. Longtime shareholders will note that the company in the past heavily promoted the idea of the triple-play household and the value of such a bundle/customer. Now, broadband is the key delivery point for competitors to Comcast's multichannel video-distribution model.
