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Comcast Broadband, Mobile Growth Engines Keep Purring

Alan Breznick
7/25/2019
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Despite much higher video subscriber losses than in the past, Comcast continued along its merry way in the second quarter, generating healthy revenue and profit margin increases on the strength of its performance in the broadband, wireless, business services and other sectors.

Indeed, Comcast, the largest cable and broadband provider in the US, reported steady revenue and subscriber gains nearly across the board Thursday morning, with the glaring exception of its slumping pay-TV business. It also racked up revenue gains in its NBCUniversal cable networks, broadcast TV and theme park units, as well as customer revenue gains at its new Sky operation in Europe.

Even on the pay-TV side of the house, Comcast suffered less collateral damage than most of its peers in the seasonally challenging second quarter, which is typically the worst of the year for pay-TV providers. More on that later.

The cableco notched 209,000 new broadband data subscribers (182,000 residential and 28,000 business) in the spring quarter, boosting its total broadband base to 27.8 million at the end of June. While that's down markedly from its gain of 260,000 broadband subs a year earlier, the year-ago total marked the company's best-ever broadband quarter. Comcast executives stressed that they're well on their way to their 14th consecutive year of 1 million-plus broadband sub increases.

Thanks to these sub gains, broadband revenues surged 9.4% to $4.66 billion in the quarter. Residential broadband ARPU (average revue per unit) rose by 4.2% year-over-year, as fewer bundling discounts and subscriber upgrades to higher-priced speed tiers lifted revenues even without price hikes. We'll have more on Comcast's broadband performance in a story on our sister site, Broadband World News, later today.

On the wireless front, Comcast's Xfinity Mobile service continued its steady, if slightly slower, ascent to profitability. The MSO added 181,000 mobile lines in Q2, raising its total to nearly 1.6 million lines. The spring mobile line gains were off from adds of 204,000 lines in the year-ago period but up from adds of 170,000 lines in Q1.

As a result, Comcast's mobile revenues rose 21.0%, to $244 million. Operating cash flow from Comcast's mobile business improved as well to $88 million, down substantially from a year earlier, as the new unit edges ever closer to profitability.

Speaking on the company's earnings call Thursday morning, Comcast Senior EVP and CFO Mike Cavanagh said Xfinity Mobile is "already positively impacting [customer] retention and attracting new customers" to the company's cable offerings. He predicted that the mobile unit will start producing positive economic results when penetration rates reach "the mid-to-high single digits."

Similar to other large North American pay-TV providers that have reported Q2 earnings so far, Comcast saw its video subscriber losses swell in the second quarter as cord-cutting by consumers accelerated. The company shed 224,000 video subs (209,000 residential and 15,000 business) during the quarter, far worse than its loss of 140,000 subs a year earlier. That reduced its total video base to 21.64 million, maintaining its status as the nation's second-largest pay-TV provider behind AT&T.

Despite these much heftier sub losses, Comcast's video revenues declined just 0.6% on a year-over-year basis to $5.59 million, thanks to price hikes and subscriber tier upgrades. More importantly from the company's perspective, video ARPU increased by 1.3%, as the operator, like a growing number of its peers, continues to shift its focus from low-margin to high-margin customers.

"We'll continue to emphasize our approach to this segment," said Comcast Cable President and CEO Dave Watson. "We're not going to chase the low end."

In a fresh research note issued after the earnings call this morning, Craig Moffett, a principal analyst at MoffettNathanson, gave an approving nod to this strategy. "As cable operators stop chasing low-value video subscribers, their margins will rise with mix shift, their margins will improve further with improvement in video economics on those that remain; their margins will expand still further as broadband ARPU accelerates (fewer bundled discounts), and their margins will expand still further as their non-programming costs fall as a percentage of revenue," he wrote. "Almost predictably, Comcast raised its cable margin 2019 guidance yet again (now to 'over' 100 bps for the year, from previously 'up to')."

On the business services side, Comcast kept up its steady growth pace of the past decade and a half. With close to 2.4 million commercial "customer relationships," the cableco boosted its business service take to $1.93 billion in the second quarter, up 9.8% from a year ago. As a result, the company is now on target to approach the $8 billion mark in annual business revenues this year.

Comcast also made news on the OTT video and Sky fronts. We'll have more on those two subjects in upcoming stories on Light Reading and Broadband World News.

Comcast's stock price dipped very slightly in morning trading on the Nasdaq exchange today, slipping 0.31% to $44.73 a share as of 12:30 p.m. ET.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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