Comcast (NASDAQ:CMCSA) stock jumped over 2% in pre-market trading. Investors were cheering an earnings report that beat analysts’ expectations. Revenue came in at $26.83 billion, which exceeded the consensus estimate of $26.77 billion. The bottom line was just as good as Comcast reported an EPS of 79 cents per share. Analysts were forecasting 75 cents per share.
This was the fifth consecutive quarter that Comcast beat analysts’ EPS estimates. Not surprisingly, CMCSA shares have been on an impressive climb. The stock has gained 34% in 2019, easily outpacing the S&P 500 Index which is up about 20% for the year.
Comcast continues to add subscribers
After seeing a decline in subscriber growth from the first quarter to the second quarter, the company reported 379,000 net additions to its high-speed internet customer base. This number beat FactSet expectations for 344,000 net additions.
The stock price increase was short-lived
Shortly after trading opened, Comcast stock lost all its gains and in late afternoon trading was down over 2%. As analysts digested the earnings report concern over declining theatrical revenue at NBCUniversal seemed to trump an otherwise positive report.
According to a Barron’s report, investors were looking for two things in addition to the growth of the company’s Xfinity broadband internet business. First, analysts were looking for details about the company’s ad-supported streaming service, Peacock. Second, they wanted guidance on the performance of Sky, the company’s newly acquired British broadcaster.
In terms of the latter, the company reported a 2.1% increase in year-over-year customer relationships. For the quarter, Sky achieved $4.6 billion in revenue which was a 4.2% decrease from the same quarter in 2018. Comcast cited currency fluctuations as a reason for the year-over-year decline.
Sky is also providing valuable expertise as the company prepares to launch Peacock. To that end, Comcast chairman-CEO Brian Roberts said that he was gratified with the way Comcast, NBCUniversal, and Sky were integrating their operations. Sky and NBCUniversal are collaborating on the first wave of co-productions and will also increase their sharing of sports content. The two entities are also developing plans for a global news channel.
What about Peacock?
The ad and subscription-supported service will launch on April 2020 with popular titles that will include The Office and Parks and Recreation. A big question will be how the streaming service will fare. Disney and Apple are jumping into the streaming space in 2019. And the company will also be elbowing its way into a field that already includes Netflix and Hulu.
On the conference call following the earnings report, NBCUniversal CEO Steve Burke was effusive in his praise for the company’s new streaming service. According to Burke, Peacock is “decidedly not Netflix”. By this Burke means Peacock will be relying heavily on ad-supported activity to “cut the investment substantially”. This would allow Peacock, in Burke’s words to “get to cruising altitude much more quickly than a subscription service”
Burke did not provide any details on the price point for subscribers who are currently non-Comcast customers.
Also on the call, Burke remarked that NBCUniversal would continue to “keep selling to other companies.” Burke cited Universal’s longstanding movie deal with HBO as one example of the kind of outside licensing deals that the company will continue to seek.
Analysts have mixed views on Peacock
In September, Comcast announced that Comcast video and/or broadband subscribers will receive the company’s Xfinity Flex streaming box for free. This means that customers that have broadband service but no cable TV can still stream Peacock.
It’s an attractive strategy. Existing customers can stay with Comcast by getting a free set-top box, ensuring that they don’t venture over to the Roku platform. Plus, they can still retain their paying internet customer base and get a jump start on building a large user base for Peacock.
And the announcement gave the stock a brief lift. The problem is that Comcast is not a neutral party in the streaming war. Comcast is not going to give away the revenue it stands to lose by giving away their set-top box. That’s why Comcast has to see growth in its high-speed internet customer base.
The gamble is simple. Whatever revenue the company “loses” in set-top box revenue it will gain back in high-speed internet revenue. But what happens when internet rates start moving higher. That’s when Comcast subscribers will realize that they are paying more for less.
Companies Mentioned in This Article