I have just a few thoughts on the Comcast earnings report.
Key Data Points:
- Cable Communications Revenue Increased 7.1% and Operating Cash Flow Increased 6.4%
- Added 258,000 Customer Relationships; Video Customer Net Additions were 80,000; High-Speed Internet Customer Net Additions were 385,000
- NBCUniversal revenue increased 13.0% and Operating Cash Flow Increased 14.0%
- Declared a Two-for-One Stock Split in the Form of a 100% Dividend Payable on February 17, 2017; 12th Stock Split in Company History
- Theme Parks revenue increased 32.1% to $1.3 billion in the fourth quarter of 2016. Pro forma5 revenue increased 13.2%, reflecting higher attendance and higher per capita spending, driven by the success of Hollywood’s The Wizarding World of Harry Potter™ attraction, as well as the positive impact of a stronger Japanese yen
Insights:
- Comcast and others have taken share from Verizon which is not a fully vertically integrated enterprise, at least not yet.
- The the logic of the proposed AT&T and Time Warner merger has been validated; Comcast is a vertically integrated MVPD and Media Conglomerate.
- CMCSA with just under 1 million additions in 2016 and 80,000 video adds -Cord cutting is not the cutting of the cord but a realignment of consumer demand.
- Broad Band is like a SASS consumer shopping mall in the home. Judging by Comcast’s success with Xfinity, and AT&T’s success with Direct TV Now (combined added about 300,000 video subs) cord cutting is not an issue provided MVPD’s have a competitive OTT distribution platform and judging by the success of AT&T (+200 additions versus about 80,000 for Comcast) the more independent platform the more subs it may attract.
- One scenario that was on the table was the performance of TV Network ratings which are down high single to low double digits across the board. Poor ratings did not translate into poor Advertising and Affiliate fees for Comcast. TV was up about 14% for Comcast organically.
- While affiliate fees must have played a role in Comcast earning in 4Q16A TV ratings probably troughed in October 2016 owing to the Elections in the US. Ratings for the industry was down as much as 15% in October and now they are down about 8% Y/Y which is a significant improvement from October.
Conclusion:
- My longstanding view suggests content is King, Distribution is Nobility, and the Consumer is the proletariat is still true and more true then ever before owing to technology disruption.
- One other factor benefiting Comcast may be the millennial.
- As Millennials are not kids anymore they are forming households and changing their consumption patterns.
- Thus Millennials are demanding new and OTT services from their MVPDs and they are aging out of events like EDM Festivals and going to Universal Studios to have fun at Hollywood’s The Wizarding World of Harry Potter™. As a result Theme Park revenue for CMCSA was up 13% proforma.
- This was a good quarter for CMCSA but I suspect the best way to exploit the Millennial and Vertical integration is TWX because the industry logic has been validated by the Consumer and not Analysts and Talking Heads on the TV.
We do not have an investment recommendation on this Enterprise nor have I received any emoluments from CMCSA, or its stakeholders.
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| For additional detail on segment revenue and expenses, customer metrics, capital expenditures, and free cash flow, please refer to the trending schedules on Comcast’s Investor Relations website at www.cmcsa.com. |
Rich Tullo
Ten X Research 