The largest cable operator in the U.S., Comcast Corporation (CMCSA, Financial), delivered its first-quarter numbers on May 4 and both the top and bottom lines beat the analysts’ expectations. The earnings stood testimony to the fact that the Internet subscribers are taking over the video subscribers in the case of the cable operator which witnessed a huge climb in the Internet subscription count during the quarter. The earnings announcement came just a few weeks after the cable operator abandoned its plans to take over Time Warner Cable (TWC, Financial) for $45 billion after the deal came under regulatory scrutiny with regard to Internet control which could have increased substantially if Comcast struck this deal. This had left some investors a bit worried, but all concerns were almost wiped off after the earnings conference. Let’s quickly take a peek into the quarter numbers to obtain a better insight into how the company’s earnings portrayed the revolution likely in the U.S. where customers are shifting to Internet plans at a rapid pace.
The quarter highlights
Revenue for the quarter rose 2.6% year-over-year to $17.9 billion during the quarter while net income rose 10% to $2.1 billion, or $0.81 a share, from a year-ago period. Excluding one-time items the net profit stood at $0.79 a share for the quarter.
It is notable that per share earnings in the quarter significantly beat the Thomson Reuters analysts’ estimate of $0.74 a share.
Video subscription fell during the January-March period with about 8,000 subscribers cancelling their subscriptions. This was contrary to the 24,000 additions the company had witnessed in its news video line of business in the year earlier similar period. This is probably due to the intense competition among TV operators in the U.S. offering streaming video services to the customers.
Moving forward, it seems that the once-famous cable TV giant will have to focus more on broadband services to keep its revenue climbing higher in the quarters ahead. Growth in the company during the quarter is eminent as the management has even announced the plans of repurchasing an extra $2.5 billion in stock this year, which would bring the total 2015 share repurchase plan to $6.75 billion from the earlier $4.25 billion it had set aside for share repurchases this year.
In the month of April, Comcast’s CEO, Brian Roberts, had stated during an interview with CNBC that it was “time to move on” from the TWC deal and added that the company had room for further share buybacks in the year. And now it seems to be happening live with respect to returning value to the shareholders.
Comcast’s CEO shared during the earnings release on Monday, “We are off to a great start in 2015, with 7.6% operating cash flow growth and record quarterly free cash flow. … Cable had a terrific quarter, once again reflecting strong results in high-speed Internet and business services. We have made progress in transforming the customer experience while delivering improved products and innovations faster than ever before...”
Rise of the internet stands reinforced
Comcast is a dominant player in the broadband services in the U.S. offering internet access to around a quarter of the U.S. market. There has been a huge rise in internet-based subscriptions during the quarter – the number of high-speed Internet customers improved by 407,000 in the first quarter of the fiscal year. Such a phenomenal rise in Internet customers signifies that the strongest growth was seen in this business segment in over four years. The Internet-customers segment comprises around 10% of the total revenue earned during the quarter and such a contribution to sales was a remarkable achievement for the company in the past four years.
One thing is absolutely clear- most of the customers are no longer interested in the traditional TV bundle offers, with changing times the consumer behavior is also changing rapidly. And that’s why the cable operator will have to shift from Cable TV to Internet based services to impress the crowd. It’s becoming more and more important for Comcast to transition into an Internet and content player that could possibly propel its future growth.
As Comcast already has more than 22 million high-speed Internet customers, analysts are speculating the company to start pursuing deals that could enlarge its international footprint in the next few years. But Comcast’s management has not revealed any plans yet on such new business proposals.
Last word
Though Comcast’s video streaming services still contribute more to the total revenue earned in the quarter than from Internet services, the trend might soon be fast changing. Hence, Comcast needs to keep improvising its current internet packages to retain its dominance in the U.S. market. And this was really well-reflected through the first quarter numbers in the fiscal year.
