Comcast Racks Up Record Quarterly Growth
LR Cable News Analysis Alan Breznick, Cable/Video Practice Leader, Light Reading 10/26/2006
North America's largest MSO reported earlier today that it signed up 558,000 digital cable, 536,000 cable modem, and 483,000 IP phone customers over the summer period, easily besting its gains in all three service categories a year earlier. It also picked up 10,000 basic cable subscribers, reversing its losses of 44,000 in the year-ago period and 91,000 in the second quarter.
Thanks to these across-the-board subscriber gains, Comcast netted nearly 1.5 million new revenue generating units (RGUs) in Q3, up from 816,000 a year ago and 830,000 in Q2 on a pro forma basis. In doing so, the company easily smashed its old quarterly record of slightly over 1 million new RGUs.
"Our priority, we are totally unified, is RGU growth," Comcast COO and Executive VP Steve Burke told analysts on the company's earnings call this morning. "We believe we have a moment in time. This is a unique opportunity."
The RGU growth certainly bolstered the company's Q3 earnings. Revenue rose to $6.43 billion, up 22 percent from $5.28 billion a year earlier and beating Wall Street's already bullish consensus estimate of $6.41 billion. Consolidated net income soared to $1.22 billion, up more than five-fold from $222 million a year ago, partly due to $669 million in one-time gains. Operating cash flow jumped to $2.4, up 25 percent from $2.0 billion.
Even in a quarter of such strong subscriber gains in every major category, Comcast's success with its still-emerging VOIP product stood out. In signing up almost 500,000 new IP phone customers, the MSO set a new cable industry record for VOIP additions for the second straight quarter even though its phone product is still not available to about one-third of its 46 million homes passed.
As a result, Comcast has already added about 1 million VOIP subscribers this year, boosting its total close to the 1.35 million mark. The company seems well on its way to picking up the 1.3 million to 1.4 million Comcast Digital Voice customers for the year that it projected in July, up from its original forecast of 1 million.
In fact, Comcast seems likely to exceed that year-end target by 100,000 subscribers or more. In a research note dashed off to investors earlier today, Craig Moffett, senior analyst for Sanford C. Bernstein & Co., suggested that the company could enlist as many as 600,000 VOIP customers in the fourth quarter, based on its September run rate of 47,000 per week, even without increasing its phone footprint.
Burke noted that Comcast actually added more phone customers than data customers from its "historical" systems during the quarter even though the VOIP product is much newer. The MSO added more broadband subscribers overall because it took over numerous cable systems from the former Adelphia Communications, which didn't offer VOIP, and Time Warner Cable over the summer.
On the downside, Comcast did lose 102,000 older, circuit-switched phone customers in Q3 as it emphasized the newer VOIP service and converted some existing voice subscribers over to the more advanced technology. With the latest loss, the MSO has now shed 300,000 circuit-switched customers in the past year.
But Comcast still closed out the quarter with 740,000 circuit-switched subscribers, giving it a total of nearly 2.1 million phone customers. That gives the company the most phone users in cable land, putting it ahead of previous frontrunners Cox Communications and Time Warner Cable.
Like their counterparts at Cablevision Systems Corp. (NYSE: CVC), Time Warner Inc. (NYSE: TWX), and Cox Communications Inc. before them, Comcast executives credited their latest surge in subscriber gains to the nationwide rollout of their "triple-play" bundles of digital video, voice, and data. With such three-product bundles now available for $99 a month to about two-thirds of their homes passed, company officials said up to half of all new customers are now taking the triple-play.
"I personally underestimated how powerful that value quotient is to millions of homes," admitted Comcast CEO Brian Roberts.
Burke said triple-play customers are forking over an average of more than $120 a month to Comcast because they often upgrade to other services, such as high-definition TV (HDTV) and digital video recorders (DVRs). Largely as a result, the company now collects an average of nearly $92 a month from each basic subscriber, up from nearly $82 per month a year earlier.
In response to analyst questions, Comcast executives said they're gearing up to roll out phone service to small-and-medium-sized businesses next year. The company, which recently lured away former Cox Business Services chief Bill Stemper to head its commercial unit, is now staffing up for the business telecom market.
"Right now there is no competition for small-and-medium-size businesses," Burke said. "We have the ability to come in and be the first real competitor in that market."
Analysts also questioned Comcast officials about rumors that the company might be weighing purchases of either Sprint Nextel Corp. or Yahoo! Inc. Company executives declined comment on the market speculation.
— Alan Breznick, Site Editor, Cable Digital News