Comcast: The decline in broadband subscriptions isn’t as scary as it sounds (NASDAQ: CMCSA)

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In June 2022, we published an article on Comcast (NASDAQ: CMCSA) on Seeking Alpha, titled: “Comcast: An Attractive Long-Term Game, Despite Declining Consumer Confidence.” In this article, we have given a brief overview company and detailed some of the main reasons we were bullish on the stock at the time.

These reasons included:

  • Solid financial performance in the first quarter of 2022, with double-digit revenue growth.
  • The company appeared undervalued according to traditional price multiples.
  • Growing dividend payouts combined with attractive share buyback programs.

We have also highlighted that fierce competition in the communications services industry, coupled with changing consumer behavior and weak cost trends across all platforms, may negatively influence Comcast’s financial performance in the short term. term and may result in additional downside risk.

Since June, the share price has fallen significantly. Comcast lost nearly 25% of its market value, in contrast to the 5% drop in the broader market.

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Today, we’re going to take a look back at Comcast and give an up-to-date view of the company, taking into account the latest news, events, and developments.

Let’s start with a brief review of the latest quarterly earnings report.

Second quarter results

In the second quarter of 2022, Comcast beat high and low estimates. Non-GAAP EPS came in at $1.01, $0.09 above analysts’ estimate, while revenue hit $30.02 billion, beating estimates of $300 million of dollars. Consolidated adjusted EBITDA increased 10.1% year over year to $9.8 billion. Financial highlights of the different segments of the business are summarized below:

Communications adjusted EBITDA increased by 5.3% and adjusted EBITDA by customer relationship increased by 3.0%; Adjusted EBITDA margin increased by 70 basis points to 44.9%

Cable Communications Total customer relationships of 34.4 million and total broadband customers of 32.2 million were in line with the prior quarter and increased 1.7% and 2.5%, respectively, from in the period of the previous year

Cable Communications’ wireless customer line net additions were 317,000, the best second-quarter result on record; Residential broadband wireless penetration increased to 7.9%

NBCUniversal’s adjusted EBITDA increased 19.5% to $1.9 billion, including Peacock losses

Peacock paying subscribers remained relatively stable at 13 million, following a very strong first quarter which was driven by a variety of extraordinary programs

Studio revenue increased 33.3% to $3.0 billion, driven by the successful theatrical performance of Jurassic World: Dominion; Adjusted EBITDA in the second quarter reflected the timing of costs for future theatrical releases, including the premiere of Minions: The Rise of Gru in the third quarter

Theme Parks Adjusted EBITDA increased $411 million to $632 million, its highest ever Adjusted EBITDA for a second quarter, reflecting improved results at each park over the period. the previous year. Universal Orlando generated its highest ever adjusted EBITDA for any quarter

Sky’s adjusted EBITDA increased 54.1% to $863 million; At constant exchange rates, adjusted EBITDA increased by 70.7%

In our view, the company’s second quarter financial results were strong, especially considering the challenging macroeconomic environment. Despite weak consumer confidence, “theme park adjusted EBITDA” increased by $411 million. It can be said that in 2021 the theme park business was still negatively impacted by Covid-19 related restrictions, so the growth is exaggerated. While that’s somewhat true, this second quarter still marks the best second quarter in theme park business history, driven by growth across all parks. We are also pleased with the way CMCSA is growing its subscriber base in the wireless segment.

Many analysts and investors ignored these results and focused on the net loss of 10,000 residential broadband subscribers – the company’s first decline in this segment. This sparked a strong sell-off after the earnings release.

On the other hand, the company recently announced that it has passed the technology test for full network 10G speeds. The firm’s objective is to deploy symmetrical multi-gigabit speeds across its entire broadband network. This could become attractive to a certain group of customers and could potentially fuel broadband customer growth in the future. The rollout of multi-gigabit speeds for Internet service in parts of the United States has already begun.

In our view, the company delivered strong financial results in the second quarter. Despite the decline in broadband subscribers, the top and bottom numbers exceeded expectations. In our view, the sale is not warranted and the company has become even more attractive from a valuation perspective.

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Evaluation (Looking for Alpha)

Based on traditional price multiples, the company is trading at a significant discount to both the industry median and its own historical 5-year average.

Based on these facts, we believe our previous “buy” rating can be reiterated.

Share buybacks and dividend

Comcast recently announced it was increasing its stock buyback authorization to $20 billion. In the second quarter, the company returned $4.2 billion to shareholders through a combination of $1.2 billion in dividend payouts and $3.0 billion in share buybacks. To date, CMCSA has already repurchased $9 billion of its Class A common stock.

The company also declared a quarterly dividend of $0.27 per share in the third quarter, in line with the previous amount.

In our previous article, one of the reasons the stock was considered a “buy” was the company’s commitment to returning value to its shareholders. In our opinion, the recent declaration of dividend and the extension of the share buyback program are two good news for shareholders. We believe the company remains attractive from this perspective and see no reason to downgrade the stock from our previous ‘buy’ rating.

Conclusion

Despite the decline in broadband subscribers, the company’s second quarter results were strong. We believe that the drop of more than 25% since our writing is not justified and that the company has become even more attractive from a valuation point of view.

The increase in share buyback authorisation, combined with the newly declared dividend, is also a positive development for shareholders.

For these reasons, we reiterate our “buy” rating.

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