With its recent rollout of Ethernet, hosted VoIP, and other products for midsized firms, Comcast is expanding its share of the commercial middle market while continuing to boost business services revenues to record levels. (See Comcast Plots National SIP Trunking in 2014.)
In their year-end earnings report and corresponding conference call Tuesday, Comcast Corp. (Nasdaq: CMCSA, CMCSK) officials cited progress in going upmarket by expanding beyond their base of small firms with fewer than 20 employees. They said "midsized enterprises" now account for 20% of the business services division's revenues, which translates to about $640 million.
Comcast executives also said they have now carved out a 10% to 15% market share in the small business market, which still accounts for the lion's share of their commercial revenues, or more than $2.5 billion. While that represents an increase from their previous market share estimates, they said they still have plenty of room to grow in that space. "We think there's still substantial opportunity there," said Comcast Vice Chairman and CFO Michael Angelakis, speaking on the earnings call.
The new market share estimates came as Comcast reported another record-breaking quarter for the commercial division. The company generated $876 million in business services revenues for the fall quarter, up an impressive 25.3% from $699 million in the year-ago period.
As expected, Comcast easily scaled the $3 billion revenue mark in commercial revenues for the year, becoming the first cable operator to do so just a year after it became the first to clear the $2 billion bar. The MSO racked up more than $3.2 billion in 2013, up 26.4% from nearly $2.6 billion in 2012. (See Heavy Reading: Cable Biz Sales to Hit $8.5B.)
With the latest gains, the commercial division is now the company's fourth-biggest revenue producer, having passed advertising a year or so ago. And it's now on course to overtake voice services for third place in another year.
Furthermore, Comcast executives said the commercial services unit was the second-largest contributor to revenue growth in both the fourth quarter and the entire year. Only broadband services, the company's second-largest revenue source, made a bigger contribution in those two periods.
With business services revenue showing no signs of slowing down, even after five years of 25% or more annual growth, Comcast officials said they see plenty of room for expansion, particularly with their current market share no higher than 15%. "We still see substantial opportunities for profitable growth," said Brian Roberts, chairman and CEO of Comcast Corp.
In a note to investors earlier this week, Craig Moffett, a principal in MoffettNathanson LLC, suggested that Comcast may be interested in buying Time Warner Cable Inc. (NYSE: TWC)'s large New York City, North Carolina, and New England cable clusters at least partly because of the potential for pursuing larger enterprises in those markets. Moffett wrote the note after press reports suggested that Comcast might buy those cable systems from Charter Communications Inc. if Charter succeeds in its quest to buy TWC. (See Comcast May Join Charter Team.)
But, questioned about that idea on the analysts' call, Comcast executives said they're not ready to take on the more demanding enterprise market, at least not yet. "We're focused on small and midsized companies for the time being," said Neil Smit, president and CEO of Comcast Cable.
— Alan Breznick, Cable/Video Practice Leader, Light Reading