Happy days are not quite here again for Comcast, even though the giant MSO does have much to cheer about these days.
In another solid earnings performance, Comcast Corp. (Nasdaq: CMCSA, CMCSK) reported Tuesday morning that it made strong gains on a number of key cable fronts in the second quarter, including broadband, bundled products, and business services. The company also made great progress in deploying WiFi hotspots throughout its territories and cutting customer churn.
But, in its core video area, Comcast reported much more of a mixed bag of results for the spring period. While the company registered its lowest second-quarter video subscriber losses in six years, it still shed 144,000 TV customers during the spring, more than wiping out its modest gain of 24,000 video subs in the first quarter. As a result, its total video customer count slipped below the 22.5 million mark, down about 200,000 from a year ago. (See Comcast Finds Sweet Spot With X1.)
In their earnings call with financial analysts, Comcast executives boasted about the continued success of their next-gen X1 IP video platform. With X1 now fully deployed throughout the company's regions, they said the product has cut customer churn by about 25%, boosted video-on-demand (VoD) and digital video recorder (DVR) use, and increased the uptake of multiple services by new subscribers, among other things.
"We're very pleased with X1," said Neil Smit, president and CEO of Comcast Cable. "ARPU has gone up nicely."
However, what X1 has not done yet is halt the steady erosion of Comcast's huge video base, which, like the video bases of most other major US MSOs, has been dwindling for several years because of heightened competition from telcos, satellite TV operators, and over-the-top (OTT) video providers. While X1 helped Comcast eke out its first video sub gain in years in the first quarter, it wasn't enough to stop the renewed hemorrhaging in the second quarter.
As Smit conceded in response to one analyst's questions, X1 has "still not had much impact" on the company’s video results.
But that doesn't mean Comcast officials have lost any faith in their wunderkind product. Instead, they plan to double-down on X1, extending its reach beyond their triple-play customer base to more double-play and even single-play subscribers. With the number of X1 set-top box installations already nearly doubling in each of the past two quarters after some initial inventory shortages, they aim to step up the pace even further in the months to come.
"We're ramping it up as quickly as we can," Smit said. Comcast is also ramping up its deployment of new video services that leverage the X1 platform, including its new Cloud DVR service (which just launched in Atlanta) and its new electronic sell-through (EST) service.
The news was much brighter on other fronts Tuesday. On the broadband front, Comcast enjoyed its best second quarter in six years, adding an impressive 203,000 cable modem subscribers. With that gain, up from 187,000 a year earlier, the MSO closed out June with 21.3 million broadband subscribers, by far the most in North America.
In the closely related WiFi area, Comcast reported that it remains on track to hit its target of 8 million hotspots throughout the US by the end of the year. With more than 4 million public hotspots already deployed, the MSO is counting on its home hotspot initiative, which involves placing dual-signal wireless gateways in broadband customers' homes and offices, to account for the lion's share of those hotspots.
Last but not least, Comcast chalked up its latest record gain in commercial services revenue in the second quarter. The MSO reported $965 million in business services revenue for the quarter, up 22.4% from its pace a year ago. As a result, the MSO is now approaching a $4 billion annual run-rate for commercial revenue, quite a feat for a company that just broke the $1 billion revenue mark a mere four years ago.
Due to their ongoing big push on the X1, WiFi hotspot, and business services fronts, Comcast officials expect their cable capital expenditures to keep climbing this year. Company executives estimate that cable-related capex, which climbed 20.4% to $1.5 billion in the second quarter, will rise in the second half of the year to 14% of cable revenue, up from slightly under 13% last year.
— Alan Breznick, Cable/Video Practice Leader, Light Reading